Posted by Nigel White,

The term ‘cash is king’ is thrown around the construction industry a lot. You’ve probably heard it throughout your career on a number of sites as everyone looks to improve cash flow.

While you might think it’s a bit of a cliché or that it’s lost all its meaning, there is a reason why it is so frequently said throughout construction projects: Because it’s true.

Having a positive cash flow helps suppliers and employees get paid on time, it means you can keep on top of your bills and, perhaps most importantly, it prevents unnecessary stresses. In contrast, when your business has a negative cash flow, it’s like trying to push water uphill - you’re constantly fighting a losing battle and your business’s survival hangs in the balance.

Cash flow issues aren’t just industry rumours, either. According to a recent report, 1 in 5 construction companies says cash flow issues are a concern, with 84% reporting that they had cash flow problems.

It goes to show, it’s not an isolated issue and cash flow affects construction companies of all shapes and sizes, whatever projects they work on.

So, how can you take away these issues? In this blog, we discuss the issues that create cash flow problems and how they can be solved with several simple solutions.

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What Causes Construction Cash Flow Problems

Without a positive cash flow, construction businesses can quickly begin to experience issues from all sides. However, where exactly do cash flow problems originate from?

According to Sage, there are 4 main problems that cause issues to construction companies.

The first is taking on too many projects. In the housebuilding sector alone, the government is calling on 300,000 homes to be completed every year by 2025, meaning that there is a lot of work out there to be won. However, taking on more than your capacity and overshooting your financial capacity is a certain way to experience financial troubles.

Admin issues such as forgetting to set up payment schedules are also issues Sage reports that can instantly affect cash flow, as well as late or non-payment having repercussions up and down the supply chain.

Finally, mismanaging or failing to track changing orders not only affects cash flow but also overall project efficiency as having to pay for additional materials or having to pay for faster delivery means your entire project will be affected.

So, what are the best ways to help improve cash flow?

Use The Latest Technology

The main reason these problems occur is simple – using outdated and inefficient technology.

It’s not the 1990s anymore. You can stop using Excel and start thinking about technology that will actually propel your business into the 21st century.

While they are convenient to help hold data, what you do with that data and how it’s managed in terms of a construction business is very limited. Instead, you need a technology that provides real-time information that helps you become more financially informed, helping you pay and get paid exactly when you need to.

a tablet device with sitetrakker logging amends to some pipework

Electronic Payments For Construction

Although cash might be king, long gone are the days of payment being completed with physical cash.

Moving forward it’s important that your next construction project also offers forms of electronic payment so transactions can happen much quicker – who really wants to keep going to the bank and cashing cheques?

The more payment options you offer, the more likely you are to get paid quickly and efficiently.

Spread Out Your Initial Payments

Just because you have to spend your money on multiple materials doesn’t mean you have to spend that money all at once. If a large portion of your cash is being spent on materials that aren’t needed for 12 weeks, that will have huge repercussions on your cash flow.

Consider a ‘just in time’ approach to your materials and agree with your suppliers on payment and delivery. It might even be worth considering financing these materials as a way to preserve your cash supply.

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Though we highlighted some obvious quick fixes to improve your cash flow, there is a whole range of solutions that can help keep you in the black.

While we’ve touched on electronic technologies and spreading out your financial commitments, you might also want to think about approaching your payroll differently, tightening your purse strings or even getting invoices sent out quicker.

Ultimately, there is a range of quick and easy methods to keep your business running smoothly. One of those, and the one SiteTrakker can help you with is a project management tool that not only provides real-time information on your project but gives you the tools to manage what’s on-site and what needs to be paid.

If you’re interested in booking a demo, speak to one of our team today.