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Accounting - Double checking the contracts and invoices for cash flow slowdown contributors

image Judson Southwell, Senior I, Assurance Services, Lane Gorman Trubitt, LLC, Dallas TX

DALLAS/FT WORTH - Issues with cash flows can come in any shape or form and are derived from multiple causes. One main culprit to these slowdowns is the same documents used to start and complete projects – specifically your contracts and invoices.

 

 

 

 

Make sure to always read the small print

    When you think about cash flow issues, your brain might rush to the end of the construction project when you’re trying collect what you are owed. But the seeds of monetary discontent are often sown before a shovel hits the dirt. Case in point: the contract’s payment terms.
    In most common terms, contractors usually have two options.  One option is to receive payments upon completion of specific phases of the job, or receive payments by the owner in equal installments over the course of the project or by what was agreed upon in the contract.
    If you have been accepting one of these options without question, consider how it can negatively impact your cash flow. Receiving payments on completion is risky since random events may occur which pushes out the completion date. For the installment option, this might leave you underfunded at important times where you need the extra cash flow.  If either of these apply, you may need to renegotiate the payment terms.

Make sure to know your customer

    It is obvious that issues with cash flow start with the owners.  Owners may tend to draw out making payments as long as possible in order to benefit their own cash flows.  In the meantime, your outstanding invoices can pile up and slow your cash flows down.
    One general rule in the construction world is that contractors must be able to get by with getting paid within 60-90 days. But, in order to increase cash flow, set a company standard to reduce that down to less than 50 days. This will vary, depending on the type of construction work you do and the structure of your contracts. But there are certain proven procedures that can be helpful. One example would be to use an electronic billing system to invoice the owners.  This will expedite the time they receive your invoice.  Make sure that your invoices clearly state the terms, total amount owed, and penalties for making late payments.
    Make sure to familiarize yourself with every owner you are working with and modify your invoicing process that will suit the situation. With some owners, a clear and precise invoice will do the trick on its own. For other owners, they may need some assistance for a more hands-on walk through approach. This is usually true when dealing with an owner that has given you payment issues in the past. In these cases, go the extra mile to invoice the owner on time and send a follow up shortly after.

Sign here


    We all know that everyone dislikes doing paperwork, but your contracts and invoices can determine the success or failure of a construction projects. In closing, make sure to pay close attention to the details and know exactly what you are signing off on.

    Judson has quickly established himself as a leader, demonstrating his passion in the assurance services department. As a Senior I auditor, Judson oversees the work performed by professional staff and serves as the primary link between the professional staff, manager, partner, and the client. He has a comprehensive knowledge of Generally Accepted Accounting Principles (GAAP) financial statements as well as a thorough understanding of audit practices in accordance with Generally Accepted Auditing Standards (GAAS). As a Senior I within the firm, he works with audit teams through planning, management, and the success of engagements. Judson specializes his knowledge and efforts within our construction services, investment companies, and employee benefit plans. He also consults with clients on internal controls emphasizing efficiency and productivity.


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