Cash flow is the lifeblood of any construction project, but it’s an area that causes major headaches for commercial and industrial contractors. Delays in cash inflows can bring work to a grinding halt and jeopardize the entire project. Under a growing financial burden of slow payments in this sector, the need for solutions is becoming increasingly urgent.

What are the main causes of cash flow issues on the job site?

Missing Invoices/Documentation

One of the biggest culprits is missing or inaccurate invoices and documentation from subcontractors, vendors, and suppliers. When paperwork goes missing, it causes lengthy delays in being able to process payments, disrupting the entire cash cycle.

Multiple Locations

Large construction projects often involve work across multiple locations and job sites. This fragmentation makes it extremely difficult to collect and consolidate invoices, contracts, and other financial documentation in a timely manner.

Late or Missed Payments

Even when contractors submit accurate invoices, they often must deal with late or missed payments from property owners, developers, or other stakeholders up the chain. These payment delays can force contractors to face project delays, layoffs, or even bankruptcy.

Manual Processes

Most construction firms still rely heavily on manual, paper-based processes for tasks like invoice collection, approval routing, and payment processing. These tedious tasks are not only inefficient but provide potential points of failure where errors and delays can occur.

Poor Cash Flow Visibility

Because of disconnected systems and processes, contractors often lack real-time visibility into their overall cash flow situation at any given point. This makes it incredibly difficult to forecast cash needs and make smart financial decisions.

Slow Approval Process

For most payments, multiple levels of approval are required from project managers, executives, owners, lenders, and others. This unwieldy approval workflow is a constant bottleneck that holds up payments.

Numerous Vendors/Suppliers

On large-scale commercial projects, contractors may be dealing with dozens of vendors and suppliers at any given time. Handling invoices, paperwork, and payments through such a tangled web of entities is an accounting nightmare.

Because of the slow payments that plague the construction industry, cash flows out of these businesses much faster than it flows back in. These statistics tell the story:
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  • 72% of subcontractors report payment delays of more than 30 days in 2023.
  • 49% of subcontractors report payment delays of more than 30 days in 2022.
  • 56 hours per month general contractors spend managing payments to subcontractors and vendors, up 27% year over year.

According to the Rabbet survey, 62% of general contractors have incurred billing and finance charges for floating payments to others in the past 12 months and many have had to use their retirement funds.

  • $273 billion is the cost of slow payments to the U.S. construction industry.
  • 141% increase in liens filed by subcontractors due to slow payments in the last 12 months.
  • 9% of total construction costs could be eliminated with faster, more reliable payments to contractors.

Cash flow delays add time, cost, and risk to a construction project. To overcome these cash flow challenges, contractors must implement AI/digital technologies to automate manual processes and streamline financial operations. Cloud-based construction project management platforms can securely consolidate all invoices, documents, communications, and approvals into a centralized system accessible to everyone involved. Companies can leverage machine learning for intelligent invoice collection and routing. Most importantly, these technologies provide a real-time window into cash flow so contractors can proactively manage payments and expenses.

For commercial construction companies, getting cash flow under control is essential to sustainable profitability and growth. By attacking the root causes through modern and scalable technology solutions, they can spend more time focused on delivering quality projects and less time battling cash crunches.

KBCm’s construction management and consultation services save clients, on average, 8%-10% off the project cost while staying on schedule. We ensure you have less risk with good partners, sequencing and management on site, well-written contracts, and job cost accounting.

Call Skyler at 940-366-2231 for more information.