Cash flow is the life blood of every construction company. Failure to manage cash flow properly could lead to the demise of the company.
This article discusses what steps Company Managers and Project Managers can implement to improve cash flow.
Cash flow can be improved by implementing the following:
- Ensure that valuation claims are submitted on time, to the correct person, in the right format and with the required supporting documents. I’ve had many claims rejected because the format wasn’t as per the client’s requirements. It’s always a good idea at the start of the contract to clarify when the valuation claim must be submitted, to whom and in what format.
- Make sure all work completed has been included. The person preparing the valuation should be familiar with the project as well as the project documentation.
- Submit and agree variation claims as soon as possible so they can be included in the monthly valuations.
- If the value of the work is going to exceed the original contract value ensure that the client has the funds to pay. Sometimes the client has to go through a long process to release additional funds for the project which could take months. I’ve worked for large reputable clients where it could take three or more months to release additional funds from within the organisation to pay additional costs. Three months when we weren’t paid. Continually update the client on the expected final contract value so if necessary they can take the required actions early.
- Ensure that the client has issued proper site instructions and contract variations for the additional works so there are no delays with payment.
- Some projects are only paid when a milestone is achieved. If the milestone isn’t achieved – maybe because documentation hasn’t been submitted or testing completed there may be no payment forthcoming. The project team needs to understand their contract documentation and ensure they fulfil all obligations for the milestone to enable payment to be made.
- Some projects pay in accordance with percentages complete on the project schedule. If the schedule isn’t updated correctly the contractor may end up under claiming their monthly valuation.
- Ensuring completion certificates are gotten as soon as possible so that retention monies can be claimed.
- Installing expensive items before the valuation claim is submitted to the client so they can be claimed in the valuation. Sometimes installing an item a day or two earlier can mean the difference of getting paid 30 days earlier.
Make sure that your site staff understand how important cash flow is and that they implement steps to improve the project’s cash flow.
(Written by Paul Netscher the author of the acclaimed books ‘Successful Construction Project Management: The Practical Guide’ and ‘Building a Successful Construction Company: The Practical Guide’. Both books are available in paperback and e-book from Amazon and other retail outlets. This article is adapted from information included in these books. To read more visit www.pn-projectmanagement.com )
© 2015 This article is not to be reproduced for commercial purposes without written permission from the author