One of the biggest challenges of running a construction company is maintaining healthy cash flow. While late payments are a common problem in any industry, they seem to be more prevalent in construction.

According to a survey conducted by the Electrical Contractors’ Association (ECA) and the Building Engineering Services Association (BESA), 66% of construction companies said they faced frequent late payments. As a result, 59% of business owners had to stop paying themselves or had to reduce their salary.

If you are facing similar issues, we’re sharing some our top cash flow tips for construction companies to make sure you stay afloat.  

Essential Cash Flow Advice for Construction Companies

1. Negotiate trade terms with suppliers

Aside from waiting for late payments, another thing that can damage your cash flow is having to pay for big purchases in one go.

If purchasing supplies in bulk is damaging to your cash flow, try negotiating different payment terms where possible. Most suppliers in construction will be open to accepting payments in instalments.

2. Regular cash flow forecasting

One of the most important habits construction companies can get into is regular cash flow forecasting. With a cash flow forecast, you can get a good idea of what to prepare for in the future. If your forecast shows up potential problems later in the year, you can take steps now to avoid them before your cash flow really suffers.

If you are planning a new construction project or have taken on a new client, you might want to conduct a cash flow forecast before you finalise the agreement. That way, you can be sure you have the raw materials and necessary cash to complete the project without running out of money.

3. Use credit wisely

While a construction business may be hesitant to get into more debt, using credit wisely can help to resolve some of your cash flow issues. Using credit can be a handy way of paying for inventory and materials needed to take on new projects while preserving your cash.

Credit options such as invoice finance or invoice factoring are also a great way to get around the issue of late payments. These methods ensure your business maintains a healthier flow of cash. They work by paying part of your invoices for you and then releasing the rest once the customer has paid, minus a fee.

4. Use faster payment collection methods

Another way your construction business can manage cash flow better is to make taking payment as simple as possible.

By using faster payment methods, there’s no need to wait for cash or cheques to clear which can disrupt cash flow. A simple way to do this is to include a one-click payment option on email invoices.

E-payments have become the norm and payment processors such as PayPal and Stripe are now more expected and trusted by customers. With faster and convenient payment methods, it takes customers no time at all and means they are less likely to leave it until the last minute.

5. Keep on top of late payments

If you are sending out several invoices per month, it can be hard to keep track of them all. However, it’s vital to keep a close eye on which invoices are nearing their deadlines and which have missed them completely.

Knowing when an invoice becomes overdue means you can chase the customer up as soon as possible, which helps to solve the late payment problem sooner.

A good way to do this is to use automated payment reminders. These can be set up on most modern accounting software these days and they work by simply sending out an automated email once an invoice is overdue. You can also set up payment reminders each week/month until they are settled.

Moving forward on sound finances

Running a construction firm can be challenging at times and more often than not reviewing your finances is not always top mind. If you’re struggling to stay on top of your cash flow it’s best you seek help early on before your construction company faces a cash shortage.

Enlisting the help of a trusted property accountant such as BrooksCity means you’ll have access to vital advice and a helping hand to stay on top of your finances. In the meantime, following some of these simply cash flow tips should help you patch up areas of your cash management and