In the construction industry, starting a new project means encountering automatic, upfront costs. How individual specialty contractors handle these costs vary, but as the saying goes, “Cash is king.” From buying materials to hiring crews, business begins when cash flows.
Getting paid in a timely manner is another challenge for specialty contractors since the average payment collection time for the construction industry is around 90 days.
If you’re a specialty contractor who needs cash flow solutions, you’re not alone. In this article, you’ll discover five tips to improve your cash flow so that you can grow your business and increase financial flexibility.
1. Establish consistent accounting procedures
Measuring what money comes in (accounts receivable) and what goes out (accounts payable) is key to ensuring healthy cash flow. It’s difficult to plan for the future without knowing how much money you need to cover costs or how much you expect to receive from customers. Creating consistent accounting procedures is key to knowing how much money you have going out and coming into your business.
Learn more: The Ultimate Guide to Construction Accounting
2. Invoice regularly
Although your business may rely heavily on strong relationships, sending invoices early and often is a must. Eliminate any questions about the costs of jobs, labor, and payments by tracking every dollar.
3. Protect your lien rights
Mechanics lien rights are a tool to help the construction industry get paid for its work. The first step to this is sending a preliminary notice, which informs the property owner of work on their projects.
In many states, preliminary notices are required to establish the right to file a lien, if needed, for nonpayment. Protecting lien rights reduces your financial risk as a specialty contractor and helps you get paid faster, meaning there won’t be hold-ups in moving on to your next job.
4. Use materials financing to have more cash on hand
Specialty contractors often serve as a bank for the construction industry. Taking on bigger projects and finishing them on time can mean draining all of your cash on hand. With materials financing, you can begin your project now and pay (up to 120 days) later.
Get materials now. Pay when you get paid.
Enjoy 120-day payback terms with any material supplier.
5. Maintain great customer service and communication
It’s all about communication. Although customer service may not seem like it’s connected to cash flow, it absolutely is. The way you treat your customers could be the top reason they return for more business. Remember solid communication and upfront expectations are key.
Improving your business’ cash flow takes discipline, consistency, and healthy practices. These tips can help you get started on your journey toward having more cash on hand.
To learn more about cash flow in the construction industry, check out and download our 2022 Construction Cash Flow & Payment Report.
The post 5 Ways to Improve Cash Flow in Your Construction Business appeared first on Levelset.