Construction Project Management Services and Construction Books
  • Construction Home
  • About Paul Netscher
  • +Construction Books
    • Successful Construction Project Management
    • Building a Successful Construction Company
    • Construction Claims
    • Construction Project Management: Tips and Insights
    • Construction Management: From Project Concept to Completion
    • An Introduction to Building and Renovating Houses
    • The Successful Construction Supervisor and Foreman
    • Designing your ideal home
  • Construction Management Services
  • Book Reviews
  • Contact
  • Blog | Construction Management
  • Site Map
  • Blog | Home Improvement
  • Index of construction articles
  • Useful Links
  • Index Home Improvement

How to improve cash flow on your construction projects - Part 1

23/4/2015

0 Comments

 
Picture
Cash flow is the life blood of every construction company.  Failure to manage cash flow properly could lead to the demise of the company.

Last week in my article ‘Negative cash flow – the death for many construction companies’ I discussed how negative cash flow can destroy a company. This article explores this topic further and discusses what steps Company Managers and Project Managers can implement to improve cash flow.

Case study 1: A few years ago I became involved in a project that had done ten million dollars’ worth of work on a cost recovery basis and yet had only invoiced for half a million dollars! Hard to believe! Not many companies can survive that amount of negative cash flow. To make matters worse none of the work had been signed off or agreed and many records were missing. It took months to find and agree the records and then invoice the work - (in all of this who knows what records were lost).

Case study 2: Another project we built had a value of eight hundred thousand dollars. However, from the outset there were delays and scope changes. The value of the project soon doubled. Although we submitted our variation claims timeously the client refused to acknowledge or pay them. After four months our costs were over one million six hundred thousand dollar and yet the client had only paid us eight hundred thousand dollars. Only when we proceeded down the legal path did the client eventually agree, settle and pay most of our claims.

These examples illustrate how not invoicing for work done and not settling variation claims can quickly get a construction company into cash flow trouble.

So what can we do to improve the cash flow on our construction projects?

1.       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.

2.       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.

3.       Submit and agree variation claims as soon as possible so they can be included in the monthly valuations.

4.       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.

5.       Ensure that the client has issued proper site instructions and contract variations for the additional works so there are no delays with payment.

6.       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.

7.       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.

Read part 2 next week for more actions you can take to improve the cash flow on your project.

Thank you for reading this article. If you found it useful please share it with your network. Please add your comments so we can all share your knowledge and experience.

Other useful articles by the author include:

Construction project variations – have you included all your costs?

What you need to know to close-out your construction project successfully

The construction project manager’s financial duties

The importance of maximising monthly valuations on your construction project

Financial checks and controls on construction projects

(Paul Netscher is the author of the acclaimed books ‘Successful Construction Project Management: The Practical Guide’ [a required text for Bachelor of Construction Management at some universities] 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 ‘Building a Successful Construction Company’. To find out more about how Paul Netscher can do for your company Read)

©2015 Paul Netscher. This article cannot be used for commercial purposes without the written permission of Paul Netscher. The article cannot be reproduced without acknowledging the author.


construction management construction project management
0 Comments



Leave a Reply.

    As an Amazon Associate I earn from qualifying purchases

    Archives

    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014

    Categories

    All

    RSS Feed

    Copyright 2016 - The attached articles cannot be reproduced for commercial purposes without the consent of the author.
    The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
    "I have what I consider some of the best books on construction management."


    Books are available from:
    Amazon.com
    Amazon.co.uk
    takealot.com

    kalahari.com
    Amazon.in
    Amazon.de
    Amazon.fr
    Amazon.it
    Amazon.com.au
    Powell's
    Fishpond
    uread
    bokus
    Amazon.ca
    Amazon.es
    Other retail stores


    Available in paperback or on Kindle

    ​"28 YEARS OF CONSTRUCTION PROJECT MANAGEMENT EXPERIENCE, DEVELOPING SUCCESSFUL CONSTRUCTION PROJECT MANAGERS AND BUILDING SUCCESSFUL CONSTRUCTION COMPANIES"

Construction Books

Successful Construction Project management
Building a Successful Construction Company
Construction Claims: A Short Guide for Contractors
Construction Management: From Project Concept to Completion
Construction Project Management: Tips and Insights
​
Build and Renovate Your Home With Your Eyes Wide Open
Book Reviews

Construction services

Construction Management Services
Paul Netscher
Construction Management Blog
​Home Improvement Blog

Contact
Developing Successful Construction Project Managers.

Building Successful Construction Companies.
30 years of construction project management experience
  • Construction Home
  • About Paul Netscher
  • +Construction Books
    • Successful Construction Project Management
    • Building a Successful Construction Company
    • Construction Claims
    • Construction Project Management: Tips and Insights
    • Construction Management: From Project Concept to Completion
    • An Introduction to Building and Renovating Houses
    • The Successful Construction Supervisor and Foreman
    • Designing your ideal home
  • Construction Management Services
  • Book Reviews
  • Contact
  • Blog | Construction Management
  • Site Map
  • Blog | Home Improvement
  • Index of construction articles
  • Useful Links
  • Index Home Improvement