Good cash flow is central to any business, which makes having a solid cash management plan crucial to your construction company's financial health, particularly in the wake of the COVID-19 pandemic. Here are four strategies you can employ to keep the cash flowing.
Four Essential Contractor Cash Flow Strategies
Automate Your Financial Process
Embracing automation can free up crucial free time and help reduce errors, which enables you to get cash into your accounts faster. If you're still dealing in checks and paper invoices, automation can make a big difference in your construction company's cash flow.
To get started, consider simple changes such as:
- Use remote deposit through a check scanning device from your bank or a mobile phone. This speeds up deposit availability.
- Automate payables like your bills to keep to a regular payment schedule.
- Send out electronic invoices automatically to smooth the payment collection process.
Watch for Profit Waste
Without careful attention, it's easy to fall into bad habits that can cost your business money in the long run. Seemingly innocuous issues, like outdated processes and challenging clients, could be harming your cash flow.
Watch out for profit-harming issues like:
- Operational inefficiencies such as low productivity and inefficient communication.
- Problem clients who are reluctant to pay bills or prone to scope creep.
- Billing fraud, reimbursement schemes, cybercrime, and other construction industry fraud, which can cost your business hundreds of thousands of dollars.
Eliminating these costly issues can help you maintain a healthier cash flow.
Be Strategic About Your Suppliers
The COVID-19 pandemic rocked the construction industry, driving up the cost of materials and disrupting supply chains around the world. This makes it essential to pay close attention to your suppliers when looking to manage your cash flow.
Talk to your suppliers about how you can get the best offer on materials. This could include buying in larger quantities to save money in the long run, or even changing vendors if needed. Your suppliers may also offer financing options, when necessary.
Be Smart About Project Management
Taking a savvy approach to project management can make a huge difference in your cash flow. When a project goes over time or over budget your cash flow may suffer. A proactive project manager can help avoid issues like these.
Take the time to:
- Manage your schedules so you are able to start projects on time
- Prepare for emergencies proactively
- Adjust your timelines as projects evolve
Taking a strategic approach to project management is especially important in the construction industry since change orders are so common.
Taking the time to evaluate the potential pitfalls that could be hurting your business can help to keep your contractor business healthy. With the right cash flow management strategies, your business can become more efficient and more profitable.