Cash flow affects every aspect of a construction company, and pay lags and delays can lead to financial struggles for businesses, according to the American Institute of Architects.
AIA shares the following six tips to help contractors improve their cash flow.
- Maintain a good credit rating. A contractor with a strong credit rating can withstand pay lags that lead to cash flow challenges. Contractors must protect their credit because it offers the flexibility needed to navigate the industry’s financial ups and downs.
- Secure a lengthier finance structure. Many contractors must invest in heavy equipment, and monthly payments are likely part of the process. A contractor with good credit can negotiate favorable interest rates and longer repayment terms, resulting in lower monthly payments.
- Send invoices quickly. When contractors send a customer a bill in a timely manner, they likely will receive payment more quickly. Develop an efficient invoicing model that positions you to avoid cash flow lags that can hurt your company.
- Provide discounts for early payment. This is a common practice in the construction industry. However, contractors who discount early payments should be sure they do not dip too far into their projected profit margins.
- Offer versatility with payment options. Ranging from credit cards to checks to apps to cash, contractors should provide as many methods of payment as possible to help ensure they get paid.
- Bid correctly. Contractors should bid with confidence and integrity, showing they value the services they offer. Underbidding to appeal to a customer can be detrimental for contractors who want to responsibly grow their businesses.
