Cash Flow

esizemore

Hello guys,

I have owned my own construction company for the past five years. We do top quality work and have no problem staying busy. In the last year I have branched out into commercial work. It seems I can't ever get paid and I am having a big problem with keeping a good cash flow. I know that most company's fail because they can't keep a steady cash flow, I don't won't me to be one of those company's. could anyone give me some advice to fix this problem? If I don't figure something out quick, I might lose my company. I just want to know what you guys do to avoid this problem.

Thanks,

SLSTech

Payment details need to be in the contract & enforced
Generally the larger the company - the longer it is going to take to get paid, make sure you adjust your price accordingly & make sure up front that you can handle the 1 to 3 month lag time
More $ up front, draws at the start of phases instead of the end
Charge more & bank the money for lean times & the longer wait times
These are just a few ideas, some others that deal in Commercial will probably have more to add

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orson

Try to get a Line of Credit at a local bank. Despite the current financial climate local banks are more than happy to extend LOC's to credit worthy businesses.

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AtlanticWBConst

Essentially, you are asking: How do I start financing my client's projects for them? ....

That should never be the case. Contractors are not banks, nor lending institutions, nor loan corporations.

As stated, maybe you need to re-figure how you set up your contract pay schedule. Stipulate more money up front, and as needed, per work-stage completion. Simply put; you should not have to be paying out of your pocket. You should have moneys paid to you, to disperse for costs and payroll before and during the work phases...

Get paid before the work segment....not after - When you do that (ask for, or schedule payment after), you will always be behind...

As contractors, our jobs are to do the work, with the Client's money...not finance the projects, for the Clients.

This should be even more-so, the case, with all our business practices, and, written contract payment-agreements - based on the current economic situation.

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Snow Man

E , you seem to just be scrambling to make ends meet like the rest of the country.


We should ALL be back in good shape by Jan. or March.

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GregS

I have a similar situation coming up.

Large multinational corporation setting up a new office in my area and the need it completely wired. It's not ever day I do $100K of wiring for an office AND want 60 day payment terms.

I'm working on all the numbers right now to make sure I do not completely tie up my capital for that amount of time. It will be tough, but I'll more than double my money when I come out of it.. mainly because I've burried a lot of 'financing charges' in the price.

I also know for a fact they are having a problem finding a moving company who will agree to their terms.

The_Game

i use factoring comp.
so i dont have to wait 90 0r 120 days to get paid
the charge are good 2%or under

every invoice i send to them get paid under 24 hrs

factoring the big jobs are the way to go for constant cash flow
90% of the big job we do are paid by factoring company

Stone Mountain

I have the same problem. Unfortunately, sometimes it doesn't work. Recently finished a $60,000 project. I got a $15,000 deposit up front. Got a progress payment. Contract was 2% discount ($1,200) if paid on completion.
Balance was $40,000 or so. Got $10,000 2 weeks after, then $5000 next day, then $10,000 3 weeks later, andother $7000, and yesterday (SIXTY FOUR DAYS AFTER COMPLETION) the balance of $10,000, only it was $6000.00
They forgot to pay one invoice, they refuse to pay another, AND they took their discount for prompt payment!
So it took me 2 months to get paid the balance, which the contract siad should be immediate.
What recourse do you have? The courts. In Ontario, small claims is anything under $10,000. You don't need a lawyer, but it can take 6 months.
Over $10,000, and within 45 days of substantal completion, you can lein the property. If they dispute it, you have 90 days to "perfect" the lein, which means you go to court and the judge rules on arguments if the lein is valid or not. If you win that one, it's going to be 18 months AT A MINIMUM before you go to superior court to sue for the money. And legals are a minimum $10,000. Which, even if you win, you may not get back.
If you DON'T lein the property, you have the same recourse in the courts, but you have nothing to stop them selling the property and closing up the company. Then you kiss your $$$ goodbye.

One reason I don't go for much commerical work.

Monday, unless I can get favourable terms, I may turn down a $100,000 builder's deck project with $35,000 profit in it.

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sprayer

How about if your customers credit is bad? I ask because lately many of my commercial clients credit has gotten worse and its getting difficult to place their invoices with anyone.

Dale S.

Can you post some info on a factoring comp company that charges 2%? I have a commercial job coming up and this would be extremely helpful...

dale

buildpinnacle

I'm surprised that SLS and Atlantic's solutions were not more noted by the other posts. A properly drawn and enforced payment schedule is the ONLY way to ensure you will be paid on time and stay AHEAD of the construction costs. We are about to start a large $300K fire resto this week and as an example we are billing 10% upon execution of contract documents, $18,000 upon completion of demo and clean up, $45,000 upon roofing and dry-in, etc. I have chose to set my pay schedule up after completed tradework, but am moving more towards the suggestion of pre-trade billing. Nevertheless, with the $30K deposit and $10K in demo costs, I will be $20K to the gross as I will be trying to collect my $18K demo draw. I give them 48 hours from invoice to pay or I stop work. If the party ends there, I have $20K gross to figure out what my next move is legally. If I had more front ended expenses, my deposit would change. I will always make certain I am ahead on monies when I bill the client for the next draw.

If you can't get your terms, there is a reason. WALK away. These terms are far more reasonable than 25%, 33%, or even 50% up front (excluding small jobs). It is easy to sell to your client as you seem like the 'resonsible contractor' by only asking for a 10% deposit. You then sell them on the fact that your billing is broken down into easy to confirm steps such as demo, roofing installed, windows/doors, electrical rough, etc....not percentages that everyone questions.

Since I have changed to progress billing by trade or activity, my cash problems have diminished greatly.

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Ivinni

If the customer is a large firm, they have a billing payment protocol that they will not deviate from most of the time.

These aren't home owners with a line of credit.

Big firms don't cow down to smaller subs. and their needs.

Money up front in commercial construction? Unheard of where I work.

Here's a couple of things that have helped me:


Ask nicely for a two week draw from the client, just tell the truth, you can't handle those terms but you really want the work, they should realize your dedication and that is what they want, maybe they will help you out. It's worked for me.

Coordinate material shipment for the COMPLETE job the day of contact execution and bill the same day with your profit on the materials included. Should be at least 15% so you have a little to help you out after 30 days. That will leave you with only labor to finance for the first month.

Hope this helps. These two techniques have helped me get out of a hole before and I still use them with all new customers.

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rbsremodeling

Leave the commercial work to the big dogs.

If it is causing you grief now, wait till one of the Big bad Nasty GC's stiffs you, takes you to court and wipes his arse with you.

I am not trying to be mean but just giving you a dose of reality. It is a very hard and brutal world in the commercial market. I have played and won some and lost some.

Residential is much easier to control and the loses tend to be less damaging than commercial work.

I repeat it leave alone right now. But if you insists

Build up your business credit

Get on good terms with your bank. Have a personal connection in the bank someone you speak to and can turn to if stuff goes bad or call for advice

Get a large line of credit built up

Get an attorney on retainer and give him a few bucks a month till you have a substantial retainer built up with him or her.

Hire or get to know an accountant that knows how to do construction accounting and knows how to bill and invoice commercial jobs

After you have done all of that. Still do not enter the commercial game. But if you must you will have a fighting chance

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genecarp

I second that post

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buildpinnacle

I assume you are referring to first tier contractor work with the commercial business owner. Ivinni is right with most huge companies. They pay on such and such based on invoices turned in on such and such. We choose our commercial clients wisely outside of the insurance work. Insurance work always has our name on the check (most always), so I do not get too concerned with the monies, plus it's not out of their pockets so they look at it as a bonus to get something for free. I still will not accept more than 2 weeks out being paid regardless of who it is for or I don't do the work. Getting stiffed on 2 weeks usually won't put me out of business.

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Scott Meyer

I'd like to hit on something Stone Mountain said about "prompt pay discounts".

This was actually a solution we were tossing around in the office, to advise our clients. It's always been on the back burner, but came to forefront as more contractors are running into cash problems.

There was a time when construction, and especially suppliers, would run off “prompt pay discounts”. For short, they may also be called 2/10 net/30. This meant a 2% discount if paid within 10 days and the full invoice price (net) if paid within 30 days. Those might have not been the exact terms or day ranges, but it illustrates the point.

This disappeared as more GC's and bigger players began taking the 2% discounts even if they were beyond the first 10 day range. Exactly what happened to Stone Mountain.

What is the lesson of the story? We still have the idea on the table. But you've got to be very careful; this being the main reason why we haven’t recommended it to anyone. It will become a mechanism for someone to pay you less without paying early.

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