15 ways subcontractors can maintain healthy cash flows

Amit Patel | December 13, 2022

Due to the nature of their job, stable construction cash flow is essential for subcontractors. Running out of money might result in a halt in production, delayed payroll, a decline in profitability, or even financial catastrophe. Most people start projects on spec and usually get paid once the task is finished.

Due to the nature of their job, stable construction cash flow is essential for subcontractors. Running out of money might result in a halt in production, delayed payroll, a decline in profitability, or even financial catastrophe. Most people start projects on spec and usually get paid once the task is finished.

Subcontractors need to control their construction cash flow if they want to operate a profitable business and keep providing clients with high value. Here are some suggestions for keeping your company profitable:

Why is cash flow in construction crucial?

Having strong cashflows during construction is essential for the following reasons:

  • Paying your workers promptly (if you are a labour contractor)
  • Purchasing equipment or materials as and when you need it
  • Being in good standing with banks and other creditors makes it easier for you to obtain loans if you have a consistent stream of construction funding.
  • having an excess capital float available in case of a delayed payments

    1. Budget

Controlling your expenditures is essential to managing your money. Create a budget and project what costs must be paid as well as what materials and supplies must be purchased—and when. After determining your needs, you might be able to purchase in bulk to take advantage of cheaper material rates and lower delivery charges.

    2. Plan ahead

What are your plans, and how much work can your company reasonably handle? Are there any leads you should pursue? Setting a sales goal and scheduling projects in advance will assist keep money pouring in and reduce the need to rush for contract jobs during a slow period.

    3. Prioritize

Advance consideration means you can prioritize certain projects or customers over others. Prioritizing higher paying customers or those who pay early helps protect your bank account—and maintain good relations with your best clients.

    4. Build a pipeline

While it’s simple to become bogged down with current ongoing work, marketing your company is crucial and shouldn’t be ignored. Spend a little time and money making sure that potential customers can discover you. The best places to start when attracting new customers are through your existing customers, encourage referrals. It is important to also have a professional presence online, pay attention to your website, social media, and SEO, so make an investment in these necessities to keep the money coming in. 

    5. Billing

A day can only have so much time. The completion of tasks for paying clients must come before the time and effort spent looking for new clients. After all, if the work isn’t finished, you can’t issue a bill.

    6. Be Adaptable

Find a balance in your scheduling so you can occasionally take an emergency project without causing a backlog in your operations. Having the agility to take advantage of a last-minute opportunity can mean additional inflows at the end of the month. This flexibility also helps you switch lanes if one of your projects is unexpectedly delayed or postponed.

    7. Communicate

Keep in regular touch with your clients and let them know what to expect, when things will happen, and when payment is due. Inform your clients if you’re running behind schedule; being honest with them may make a missed deadline less problematic. Software for project management enables subcontractors to remain on top of every facet of each project to ensure seamless operation, open communication with customers, and fulfillment of expectations.

    8. Manage scope

It might be easy to assume that going above and beyond is a good idea when we’re eager to impress a customer. Your working relationships and your bottom line will suffer if you invest more in resources than what was planned and budgeted for at the time of quoting for the job. It creates unjustifiable long-term expectations. Make sure the project’s scope is specified explicitly, and renegotiate if required.

    9. Risk

Being a subcontractor involves a certain amount of risk, which must be effectively managed. Being proactive will dissipate issues that could hold you from finishing jobs.

  • Have money saved aside if at all feasible.
  • Have contractor peers available as a backup
  • Be ready in case something goes wrong and prevents you from finishing the assignment or if a payment is received late.

    10. Record keeping

Maintain accurate expense records and send invoices as soon as work is completed

Making sure you invoice promptly will ensure that payment comes through as quickly as possible. It’s best practice to keep receipts and invoices for every expense you incur as a subcontractor. Having documentation of all expenses helps ensure everything is in order when its time to file taxes.

    11. Get paid in advance where possible

Payments are key to avoiding late fees or bounced checks. One way to do this is by offering a discount for early payment. For example, 1% off if you’re paid within 5 days of the invoice being sent out. When there is an opportunity, ask the client if you can be paid upfront.

    12. Track time

Keep track of the resources you spend on each project so that when invoicing your client at the end of a project there’s no confusion about the work done, what tasks and materials were included. You can also use this data as a way of speeding up your workflow and identifying the tasks that take the most time.

  • Remember to establish dates in your contract
  • Use project management tools to track milestones and run daily reports
  • Obtain a signoff from the client at the earliest possible on satisfactory completion of jobs on a regular basis. This will avoid the cost of rework in case of damage of completed work by another party on the job.

    13. Establish a line of credit

Some business owners will demand that their subcontractors get a bank line of credit. This amount is often no higher than one month’s billing capability. This can be helpful for subcontractors who are working on numerous assignments at once since they can borrow money against future payments of invoices they have already submitted if they need additional cashflow right then.

    14. Negotiate better terms with suppliers

Don’t be afraid to negotiate, especially if you’re a loyal customer. Many suppliers will extend credit for large projects with guaranteed payment and may offer discounts for volume. The same goes for insurance, utilities, and other services: shop around for the best deals, and ask—don’t rely on them to offer you the best price.

    15. Use online tools to make your cashflow management easier

Maintaining your accounts in one place makes it simpler to reconcile and achieve financial success: real-time updates and notifications ensure that nothing is missed, and automatic invoicing removes time-consuming administration and expensive errors.