Monthly Mission: Cash Management Checkup

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Monthly Mission: Cash Management Checkup

There are three times a year that we like to focus on cash management in a commercial construction company:

  1. Late fall – tax planning and the winding down in the workload require some additional cash management.
  2. Early spring – we survived the winter and there is a strain on cash flow during this time as projects get started.
  3. Now – Because it feels like it is all going to be okay with cash flow and sometimes we can get a surprise.

Now is the time to make sure we have a system in order for billing and payments so be prepared by reviewing the following:

Billings:

Although it seems simple to stay on top of billings, when we get busy, they can fall through the cracks, especially smaller, service type, jobs.  Over the years, we have found jobs that were somehow forgotten or erroneously closed without being billed.  Staying on top of billing makes cash management easier.

  • Review your job profitability report or job billings report from your accounting system on a weekly or monthly basis.
  • Another tip:  Build a calendar for billing so you don’t miss a deadline.
  • For help in building your calendar, check out The Accounting Calendar under Cut-Off Procedures in All Access or review the Cash Cycle section in Advanced Cash Flow Systems.

Payment of vendors and subcontractors:

Payment of subs and vendors is critical to the completion of the job and its success.  Watch for situations where you need to pay your subs or vendors, but haven’t been paid by the owner or general contractor.  Communication is key.

  • Discussing and maintaining communication, especially with your key relationships, makes the jobs run smoother.  We don’t ever want accounting to stop a job due to lack of communication.
  • Make sure your payment terms in your accounting software match the terms you’ve agreed to with your suppliers and subs.
  • For more help on this subject, check out the section on Managing Subcontractor and Vendor Payments in the Cash Cycle in Advanced Cash Flow Systems.

Retention:

The four-letter word.  We have seen and we were victims of forgotten billings of retention.  It is just good practice to formally bill retention once you have earned it.  Remember, the best time to negotiate retention is before the contract is signed, but it is never to late to discuss it.

  • Because gross profit is many times the entire retention on the job, a system of negotiation for and collection of retention gets that profit in the door faster with fewer surprises.
  • Starting O&Ms early in the job and making a list of items necessary for the release of retention helps make sure nothing falls through the cracks.
  • For tips on retention management see Managing Retention in Advanced Cash Flow Systems.

If you are one of our All Access members, check your portal for Advanced Cash Flow Systems access.  Atlas CFO All Access members receive Advanced Cash Flow Systems as part of their membership for a limited time.   Log in and check out the sections mentioned above.

Would you like to learn more about our cash flow management courses?  Click here.

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Want more resources?

Atlas CFO Free Financial Scorecard here

Atlas CFO Free Top 10 ways to increase cash flow here

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