Imagine financial operations that don’t consume all your valuable time and resources.
Sound too good to be true? If you’re like most small construction companies, you might be stuck juggling subcontractor payments, job costs and accurate payroll departments…
Poor contractor payment management smothers your firm in paperwork and preventable setbacks. You deserve better.
Here’s how to start giving yourself a break.
What you’ll learn:
- Why Cash Flow Breaks Small Construction Firms
- The True Cost Of Messy Contractor Payments
- How To Automate Invoicing and Payment Tracking
- Streamlining Payroll and Compliance
- Build A Bulletproof Payment Schedule
Why Cash Flow Breaks Small Construction Firms
If your firm isn’t drowning in cash flow problems, you’re in the minority.
Here’s the hard truth: cash flow is the biggest reason small construction firms fail.
Think about the cash flow cycle on most projects.
Up front costs for materials need to be funded. Weekly payments to crews and equipment rentals must happen before you’ve even received any invoices from the client.
As the business owner, you’re starting every project in the red.
Then you need to wait for that client to pay you at the end of the project. If things go smoothly, you may finally see some profit two months (or more) later.
That’s why accounting practices break firms: too much time goes by between disbursing money and getting paid.
On paper, this sounds easy. You monitor what needs to be paid, when it’s due and where your dollars are going.
But most small construction firms are manually tracking payroll, losing invoices and hoping their finances add up at the end of the month.
Enter construction payroll software.
Building a functional financial operation starts with taking the pressure off your back office by automating tedious tasks. Construction payroll software for accountants automates your entire contractor payment process.
Without strong processes in place, you’re leaving your firm’s financials up to chance.
The True Cost of Messy Contractor Payments
If paying people on time was just an inconvenience, nobody would care.
Late payments actually have devastating consequences to construction firms of all sizes.
Research from Built found that late payments plague the industry:
- 70% of contractors experience slow or inconsistent payments
- Invoices are routinely delayed (causing bids to increase 8% on average)
- Payment delays have caused over a third of projects to be cancelled or put on hold
If slow payments didn’t kill your firm with the sudden loss in projects… There’s more bad news.
Slow payments are so detrimental that 56% of construction pros surveyed by Mobilization Funding have outright refused projects due to cash flow concerns.
Your competition is improving their contractor payment process and running away from the firms that aren’t.
If you’re a small firm waiting on invoices to keep your business afloat, late payments can literally destroy your company. You don’t have the financial flexibility that larger firms do.
A better contractor payment process protects your firm from missing payments and losing precious projects.
How To Automate Invoicing and Payment Tracking
If you’ve been manually tracking invoices, it’s time to stop hurting yourself.
If managing a team of employees sounds time-consuming, just wait until you’re also tracking who you pay, when and how much.
Try doubling that workforce. Now you’ve got an idea of how painful manual invoicing can be.
At its core, invoicing is just asking someone to pay you. But manually creating invoices for every job and sending them off to busy project managers isn’t scaling.
Software that automates invoicing can:
- Generate invoices for you at set project milestones
- Send automated payment reminders
- Flag overdue accounts
Not only does this save you tons of time (no chasing down paperwork), but it practically guarantees you’ll get paid faster.
Teams that automate their invoicing process receive payments quicker. That’s a big deal in an industry where cash flow equals survival.
Streamlining Payroll and Compliance
Listen up: payroll in construction will never be simple.
Whether it’s balancing different pay rates for different trades, dealing with overtime regulations, or satisfying union requirements and tax compliance… there’s a lot to manage.
And every mistake you make could cost your firm thousands.
With contractor payment management, “payroll” is one of the most important pieces of the puzzle.
That’s why construction-specific payroll software will save you countless headaches.
Payroll programs not made with construction firms in mind don’t understand how to handle job costing, certified payroll or multi-state tax compliance.
By simplifying your firm’s payroll process, you can:
- Eliminate tax penalties caused by payroll mistakes
- Accurately capture costs per project and per employee
- Free up hours your team currently wastes on number crunching
Construction firms with solid payroll practices also enjoy higher retention rates. Workers that are paid accurately and on time are more likely to stick around.
Build A Bulletproof Payment Schedule
Here’s a fun trick that can improve your financial operations almost instantly.
Create a rock-solid payment schedule… and explicitly communicate it.
Project payments should have defined billing milestones, clearly communicated payment due dates, and explicit language about what happens when a payment is late.
Take the guessing game out of payments by setting expectations from day one.
Small subs can rely on your firm to pay them on time if they can count on you to pay them every week.
General contractors get to forecast their finances better because they know when they’ll be paid.
Your perfect payment schedule should include three things:
- Progress billing milestones tied to specific completions
- Due dates that are agreed upon by all parties
- What’s going to happen if a payment is late (and why you should care)
Set your payment terms and enforce them. Everyone wins when payment expectations are clear.
Tying It All Together
At this point, you should have a good grasp on how to clean up your construction firm’s financial operations.
Managing contractor payments is do or die for small construction firms. Between living “paycheck to invoice”, drown-your-firm-in-red tape compliance, and razor-thin profit margins… staying afloat is difficult.
Small firms that implement better contractor payment management practices are dominating the competition. They’re not leaving money on the table, or wasting time reinventing the wheel.
Let’s review:
- Manage cash flow by gaining insight into who’s owed what and when
- Get your invoices out faster with automation
- Track payments with construction specific tools
- Streamline your firm’s payroll process
- Set clear payment schedules for every project
There’s enough uncertainty in construction. Take control of your financials and let the rest fall into place.
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