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3 Tips to Overcome Cash Flow Problems in the Construction Industry

Construction companies are no strangers to cash flow issues. Common issues like slow-paying customers, fluctuations in demand, difficulties in meeting payroll, and having to float project costs all take a heavy toll on the owners of construction businesses. According to the most recent Construction Cash Flow & Payment Report, 97% of construction professionals experienced stress from slow payments and cash flow problems in 2021. And only 9% say that they always get paid on time (down 60% from 2020).

Maintaining a steady and positive cash flow is essential for a construction company to be able to run its daily operations and stay in business. Here are 3 tips to help you overcome cash flow problems in your construction business.

  1. Have the Foresight to Identify Potential Cash Flow Problems Before They Occur

One of the best ways to mitigate cash flow problems is to recognize them before they become a concern. A cash flow forecast can help you identify potential risks, find solutions, and determine the impact the issues will have. Before you begin any new project, you should be conducting a thorough analysis and prediction of how much cash will be needed for the duration of the job.

A cash flow forecast can help you:

  • Make informed decisions about how to spend your money.
  • Determine when you can expect to have money coming in and going out.
  • Budget for retainage.
  • See how a potential investment would impact your finances.
  • Identify the need to secure funding to cover the cost of a project’s materials, labor, or equipment.
  • Prepare for a lull in sales.
  • Determine your capacity for future growth.
  1. Improve Your Invoicing Practices

One of the biggest problems for construction companies is waiting for payment from slow paying clients. In a previous blog post, we offered some tips for getting your invoices paid faster such as using invoicing software that can send automatic invoices, incentivizing early payments, charging a fee for late payments, and implementing progress invoicing with additional phases. Other simple ways to improve your invoicing practices are:

  • Always process change orders immediately

Stay on top of change orders and process them as soon as you receive them. Otherwise, you will be fronting the costs of the change orders and risk falling behind on your own bills.

  • Don’t be passive about collecting payment

Set a strict payment schedule for your clients and stick to it. Send your invoices ahead of time and don’t be afraid to follow up with frequent reminders. Also, be sure not to slack on enforcing your policy of late fees.

  • Avoid underbilling

If a portion of a project is going to cost you a certain amount of money and you bill your customer for less than that amount, you’re going to encounter cash flow issues. Always bill the correct amount in a timely manner.

Improving your invoicing practices will help you avoid having overdue invoices pile up that can cause cash flow problems. If you’re in a bind, invoice factoring can help you cash out on all your slow paying debtors.

  1. Always Be Prepared by Building a Strong Financial Foundation

In the construction industry, you always have to expect the unexpected. Between inclement weather, permitting delays, subcontractor issues, equipment failure, and more, construction companies often face fluctuations in cash flow. That’s why you should always be prepared with enough cash reserves on hand in the event that an unforeseen expense or situation arises.

A line of credit can help you build a strong financial foundation. It gives you ongoing access to funds that you can use any time you’re waiting to get paid, if you have a sudden expense pop up, or if you’re just short on cash. Whenever cash flow is tight, a business line of credit will allow you to have immediate cash at your fingertips day or night. It’s best to secure a line of credit now, before you need it.

Get The Financial Tools You Need Today

Fundible can give your construction company the financial tools you need when building your business. With our funding products you can:

  • bid on new jobs
  • hire a bigger crew
  • pay subcontractors and vendors
  • buy equipment or materials
  • get help meeting payroll
  • and more.

If you’d like to learn more about how a business line of credit or any of our financing solutions can help your construction business, contact us today at (855) 784-0008 or apply today to get started!