For construction companies… how to overcome the cash flow problem
As a construction company owner, have you ever faced problems related to cash flow and getting your financial dues from clients? If you encounter this problem, you are not alone. The problem of cash flow is one of the most common problems that many construction companies are facing.
Although it is a common problem faced by about one of every 5 companies, there are solutions and amendments that construction companies can follow to improve the company’s cash flow.
But before we start talking about these solutions, you must first know the reasons that lead companies to face this problem.
How the cash flow problem occurs?
To know all the available solutions, you must first understand the reason behind the cash flow problem, and the failure of clients to pay to the company on time is considered the main problem that leads to a problem in the company’s cash flow.
In general, the payment structure in the construction company consists of the general contractor, followed by the sub-contractor, then the sub-subcontractor, knowing that the problem of cash flow can appear at any of these levels.
Usually, contracts between clients and construction companies include that the company will be getting pre-payment or regular payments during the project, but many companies get money only when the project ends, which leads to unexpected problems with the company’s cash flow.
Hence, the cash flow problem has become one of the serious problems that the construction companies are facing, because it does not only hinder the company’s ability to grow its business but more importantly, it delays workers ’dues and salaries, which may lead workers to search for jobs elsewhere and consequently the projects that implemented by the company will be retracted or delayed.
Although this problem affects many construction companies, this cannot be considered as a rule for this industry, as it cannot become a natural problem and is accepted due to the many problems that cause by it, therefore companies must work hard to solve and reduce this problem.
Here are 4 solutions for the construction companies to overcome the cash flow problem:
- Choose your clients carefully
If you own one of the major construction companies, then most likely you will have dealt with a different group of clients, and therefore this will allow you to choose your clients in the future carefully. Thus, you can avoid working with customers who have had payment problems in the past.
But it is worth noting that there are some companies that do not enjoy the luxury of choosing clients, as they may still be new and therefore need to expand their business, in this case, those companies can request an advance amount from the client or conclude a contract that guarantees the company to obtain payments in a regular manner with a penal clause in case of any delay in order to guarantee the company’s rights.
2. Try to apply flexible payment plans
Flexible payment plan implementation is one of the solutions that construction companies can resort to, as it gives customers more time to pay their bills. For example, instead of applying the traditional method of payment as the invoice period is 30 days, payments can be divided into installments, because the installments allow customers to pay the bill in increments. Although some companies prefer full payment but, in light of the cash flow problem that construction companies are facing, some money is better than nothing.
3. Charge interest in case of late payment
Many companies do not impose interest on the late payments, but writing the interest clause in the company’s construction contract has become one of the solutions that guarantee the company’s dues, as it is a way that the company can use to put pressure on clients to pay the amounts in the specified time.
4. Submit a report to the court
One of the exhausting matters that may not be available in all businesses is submitting a report to the court, but sometimes, and after a long struggle to get money from clients, engaging the court in the matter may become the only solution for the company to get its money and guarantee its rights.
