Strategies To Improve

Contractors Cash Flow

Group Members :
MOHD HAFIZ B OTHMAN
NURUL IZZATI BT ABDUL WAHAB
FITRI TURSINA BT SAMSURY
NOR HIDAYAH BT MD DESA
SITI SYAFINAR BT SALMI
NURUL INSYIRAH BT SHAZALI
 Improving cash flow
The cost of borrowing is a matter of concern for
contractors

Thats because profit margins are so low and

banks lend at a premium over the base rate.

For these reasons, new ways of reducing negative

cash flows are always attractive.

The method saving the money can be done at

three stages.
 Improving cash flow
At tender stage

These methods will bring in early

money
But it must be done before
METHOD
submitting the priced bills.
Load money into under-measured items

Load money into early items such as excavation and

substructures

Load money into mobilisation items in the preliminaries

 Improving cash flow
At post-contract
These methods will increase profit
levels: METHOD

Submit all documentation

Ensure timely release of retentions

by submitting health and safety file information on time

Agree on final account

Collect outstanding retentions on time

 Improving cash flow
During the contract
Method
1. Submit interim application on time
2. Over-measure the work in progress
3. Overvalue materials on site
4. Agree in the value of variations as soon as
possible
5. Keep good records and submit claims early
6. Deal with defective work quickly to avoid
delayed payment
7. Make maximum use of trade credit facilities
 Cash Flow Strategies
To apply retention to subcontractor payments
that correspond to the retention applied by the
owner.
When dealing with public contracts, inquire
about substituting municipal bonds for
retainage.
This technique generates interest income,
which will boost cash flow and net profits. You
must be sure that change orders and claims are
billed and collected as soon as possible after
they are approved
Other important strategies for contractors:

1. Establish an adequate credit line with a bank

2. Secure long-term financing for fixed asset purchases
3. Consider leasing rather than purchasing fixed assets
4. Make sure that delayed payments (e.g., claims and
delinquent change orders) include increases for the
cost of cash
5. Consider depreciation methods for tax purposes that
accelerate deductions and decrease tax liabilities
6. Get involved in the tax planning process-
understanding the tax impact of various activities
and strategies is key to your business
 Improving Cash Flow
Planning
Proper cash flow planning helps contractors
make better use of budgets, employ financing
and capital more effectively, increase
revenues, and boost profits.
To analyze cash receipts and disbursements,
contractors must know when the work on
varying aspects of a project will be performed.
This timeline can be used in conjunction with
the contract to map out expected cash flows
related to the project.
 Cash Outflow Strategies
If a contractors bills arent paid on time, creditors
may demand that future purchases be paid for in
cash. Interest and penalty charges on unpaid
balances can quickly compound.
Contractors can better control cash outflows by
implementing an automated accounts payable
system to organize payments by due date. Unless
they receive an early payment discount, contractors
should pay bills when due and not before.
It may be possible to negotiate with key suppliers for
longer payment terms. In addition, contractors
experiencing cash flow problems should review
existing bank loans to see if they might be
restructured under better terms.
 Cash Inflow Strategies
Contractors should be able to generate up-to-the-
minute information on the status of each outstanding
account.
Project managers should have reports that show due
dates for project progress payments,the report should
include:
a. the date the last bill was sent
b. the date the last payment was received
b. the current balance, and when required
c. the number of days delinquent.
.Managers should contact customers soon after
payment is due to determine why payment has been
delayed and to obtain a schedule from the customer
that indicates when payment will be made.
 Contractors should also focus on collecting
retentions because its important to develop and
implement procedures to complete :
i. punch-lists
ii. as-built drawings
iii. owners manuals
iv. other submittal requirements
. Once this information is made available, a
contractor is better able to push for the release of
funds from the project agency or owner. Its
important also to stay on top of the status and
aging of retentions to ensure that your firms
collection and mechanics lien rights are
preserved. (Mechanics lien laws vary from state
to state.)
 Delays in collecting payments for
work performed can weaken a
companys working capital position.
Without adequate working capital, a
contractor may not be able to take
advantage of opportunities that
become available.