Cash flow in construction

Cash flow is the movement of income into and expenditure out of a business over time. If there is more money going out than in, this is negative cash flow.

Possible cash flow problems may be:

• Fee agreements that are tied to work stages rather than monthly invoicing so there is not a regular income attached to the project
• The firm may not be charging for variations to the brief or scope of works
• The firm may be holding too much ‘work in progress’ stock that has yet to be invoiced for
• The clients might be slow-paying or disputing invoices to delay payment
• The firm may have expanded too quickly, hiring more staff and renting larger offices, without the means to support them

To minimise the risks of future cash flow problems, the firm could establish a financial system that includes:

• A long term-plan (3 to 5 years) that establishes the direction, ambitions and targets for the practice, including a budget of income and expenditure
• Monthly forecasting and monitoring to allow preparation for shortfalls or increases in cash.
• Monthly management account that shows how the practice actually performed against the annual budget and previous month’s forecast for income, cost and profit.
• Cash collection report monthly setting out details of each invoice rendered and when it is/was due for payment – senior staff to agree a level of debtor days before more severe action should be taken
• Weekly monitoring or timesheets against projects so that performance can be monitored in both cost and time terms
• Daily monitoring and records for fee invoices paid, suppliers’ invoices settled, fee invoices raised, invoices received from suppliers and petty cash utilised
• Other reports – annual audited accounts, VAT returns and bank reports.

Anti-spam check. Do NOT fill this in!

<p>Cash flow is the movement of income into and expenditure out of a business over time. If there is more money going out than in, this is negative cash flow. </p><p>Possible cash flow problems may be: </p> <ul><li> Fee agreements that are tied to work stages rather than monthly invoicing so there is not a regular income attached to the project </li><li> The firm may not be charging for variations to the brief or scope of works </li><li> The firm may be holding too much ‘work in progress’ stock that has yet to be invoiced for </li><li> The clients might be slow-paying or disputing invoices to delay payment </li><li> The firm may have expanded too quickly, hiring more staff and renting larger offices, without the means to support them </li></ul> <p>To minimise the risks of future cash flow problems, the firm could establish a financial system that includes: </p> <ul><li> A long term-plan (3 to 5 years) that establishes the direction, ambitions and targets for the practice, including a budget of income and expenditure </li><li> Monthly forecasting and monitoring to allow preparation for shortfalls or increases in cash. </li><li> Monthly management account that shows how the practice actually performed against the annual budget and previous month’s forecast for income, cost and profit. </li><li> Cash collection report monthly setting out details of each invoice rendered and when it is/was due for payment – senior staff to agree a level of debtor days before more severe action should be taken </li><li> Weekly monitoring or timesheets against projects so that performance can be monitored in both cost and time terms </li><li> Daily monitoring and records for fee invoices paid, suppliers’ invoices settled, fee invoices raised, invoices received from suppliers and petty cash utilised </li><li> Other reports – annual audited accounts, VAT returns and bank reports. </li></ul>

Tick the box below to verify you are not a robot

By clicking 'Save page' you agree to our Terms and Conditions and Privacy Policy.

Summary:

Cancel | Editing help