By Patrick Hogan, handle.com

Arguably, one of the most stressful things subcontractors have to deal with is cash flow. Growth and sales are always on the minds of business owners–but it’s hard to make moves when liquidity is held up. Taking care of cash flow should be a priority, but it’s easy to make mistakes when you’re not looking at the big picture. Some seemingly simple tasks taken for granted are building blocks for healthier balance books. 

Here are some tips for a more stress-free and cash-flow-positive new year:

Invoice regularly

Progress billing, by default, provides more protection for subcontractors, mainly as it allows you to reduce risk gradually as the project progresses. Invoicing regularly helps subcontractors stay top of mind of clients’ payable teams and is also one-way clients keep up-to-date with the progress of a project. When invoices are sent regularly, any irregularity is more likely to be immediately addressed instead of causing issues down the line for all parties. This level of transparency is essential in any construction project. 

Getting paid in increments is also advantageous for construction businesses, where, in many cases, capital outlay is left in the hands of the provider, making them assume more financial risk before seeing any payments. Regular invoicing works hand in hand with the next tip.

Bulletproof your contracts

Contracts are a vehicle for construction parties to offset financial risk. Of course, it’s an important document that establishes the legal responsibilities of each party. However, smart players know that contracts are an instrument to mitigate risk, and if you’re not careful, you could get the shorter end of the stick. This doesn’t mean you’re dealing with unscrupulous people–this is just part of business, and you must advocate for your business whenever you evaluate a contract. 

Deposits, payment disputes, retention, and lien waivers are some areas where risk-shifting is coursed through, so you would want to make sure your team granularly inspects your agreement to ensure you’re not getting short-changed or inadvertently losing risk protection you assume is present in all projects.

Secure lien rights

Being familiar with lien laws is essential for businesses operating across state lines. Cash flow management would be futile if you’re not protecting your payments. Many business owners have lost out on time and money painstakingly invested in a project just because of a missed notice deadline. Mechanics liens provide businesses in construction protection against non-payment. Since liens are security claims placed on a property improvement, they ensure that providers such as subcontractors and material suppliers aren’t left out in the cold in case things go sideways in projects or a client fails to pay. 

Of course, lien rights also come with responsibilities. For many states, the most important duty is to file a preliminary notice. However, there are strict deadlines and filing guidelines that have to be followed. It’s wise for subcontractors to use services that streamline and automate preliminary notice management and lien filing processes to not lose out on payments because of clerical errors or oversight. 

Vet clients

Landing new projects can be quite challenging for subcontractors, so there’s a tendency to be more lenient regarding the vetting process that should come with any new prospect. However, remember that the subcontractor takes up most of the risk at the beginning of the project. In many cases, you’ll be in the negative for a specific project before you turn a profit in the latter phases. This makes it absolutely essential for any business involved in construction to vet clients thoroughly. Simply put, ensure that a client can pay and has a good record of keeping to their word before signing the dotted line. There are several publicly available resources you can maximize to get a better picture of your prospects’ finances. In bigger projects, it’s not unusual for financial documents to be easily made available when requested. 

Stick to your credit policy

Your credit policy serves as a handbook that guides you throughout the whole customer journey. It is especially important in construction where payment structures can be complex, and you’re dealing with customers that are likely running on razor-thin margins. Ensuring that you have a policy in place that dictates the financial boundaries that allow for a healthy cash flow is essential in ensuring that your team operationalizes risk mitigation every step of the way throughout the lifecycle of a project. If you don’t have a credit policy or tend to be lenient in following through with using it, you could be assuming greater financial risks for each project than you think. 

Here are some ways to achieve a healthier balance sheet and better cash flow in the new year. Remember that cash is king, and positive cash flow will allow you to avoid costly mistakes that are very common in construction. 

About the Author:

Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors and material suppliers with lien management and payment compliance. The biggest names in construction use Handle on a daily basis to save time and money while improving efficiency.