Cash Flow Issues in the Construction Industry

Remodeling or building homes from the ground up is a great way to make money. But in the construction industry, the general rule is that in order to make money, you need to spend money.

This can be a struggle if you don’t have a lot saved up or access to credit or trade accounts. You need consistent cash flow, which is the money that comes in and goes out to keep your business operational. Without it, you will likely experience delays, conflicts, and other issues.

However, contractors do not get paid on a regular schedule, unlike other types of workers. You may not get paid on a weekly basis or even every other week. It could be a few weeks in between payments. Things get even more complicated when payments are delayed.

Therefore, you need to be prepared financially from the moment you bid on a project. Construction billing can make this difficult, as you have to be able to purchase supplies, pay vendors, and pay subcontractors at any point during a project. For this reason, you need to do what you can to avoid problems with cash flow. Here are some common issues to avoid.

Joint Ventures

Construction projects may be completed by multiple companies. This is often necessary, but it does increase your level of risk. When you work with other companies, their behavior affects how and when you get paid. If they do something negative, your payment could be jeopardized.

No Advance Payment

You need to require some sort of advance payment in your contract. For some contractors, this may mean a certain amount or percentage of the job cost. You should ask for enough money to get your initial supplies in order and have enough cash on hand until the job starts progressing and you can ask for the next draw.

Paying Bills Early

Construction companies deal with monthly bills from vendors, equipment costs, materials, and change orders. Paying bills early may seem like a good thing, but it can leave you with limited cash flow. This makes it so you’re placing the financial burden on yourself.

‍No Credit Policy

It’s important to understand how the companies that you work with operate. Construction is a credit-heavy industry. It’s common to have trade accounts with material suppliers, subcontractors, and vendors. Having these relationships in place can make it easier to keep projects moving along. Just make sure you understand the payment terms and pay promptly.

Contact Us Today

As a general contractor, It’s important to ensure that you always have access to the money you need to make progress on a job. Cash flow issues can cause delays, which can result in conflicts with clients.

Facing lawsuits or issues with your license? Contact the Florida contractor representation lawyers from Linkhorst Law Firm, P.A. We have experience dealing with a variety of construction law matters. Schedule a consultation with our office today by filling out the online form or calling 561-626-8880.

Source:

flashtract.com/blog/common-construction-cash-flow-issues