Cash Flow

Managing Vendor Accruals and Vendor Invoice Matching on Large Construction Projects

 Click to download whitepaper The Situation The “Owner” on major construction projects, has a very different set of challenges and priorities than contractors or EPCs. While contractors are busily figuring out ways to get the work done as cheaply as possible – and invoicing the client for as much as possible – the Owner is busily controlling project finances, monitoring vendor performance, and making sure the project is commissioned on time and on budget.  In the big picture, Owners of course have a much more holistic view of the project in its entirety; and ultimately are managing the cost & timing expectations of their stakeholders & investors.  What that translates to on a day-to-day basis for the Owner, is close management of their vendors. Put into simplistic terms, it’s the vendors who are doing the work, and the Owner who is paying for it.  The challenge to the owner however; is that close management of vendors is not a trivial thing to do. There can be dozens if not hundreds of vendors on the job throughout a project’s lifecycle, and keeping on top of their costs, activities, productivity – and validating the invoices they send – all requires the owner to collect, organize and analyze a lot of information on a daily basis.  Which is not a trivial thing to do. 1 The Problem The Construction Industry is one of the last industries to adopt and embrace technology as end-to-end solutions for management of major projects. It’s shocking how many paper timecards, home-grown spreadsheets, phone calls, emails and handshake agreements that are still used on multi-million dollar – or multi-billion dollar – projects. I know there are a lot of people that hold on to

What’s the Difference between a Project Spend Forecast and a Project Cash Flow Forecast?

Cash moves at a different pace than activities. Maybe that seems obvious, or maybe you’re not sure what I’m talking about; but it’s an important distinction to understand in construction project management. When I first started working in project management, I had envisioned a job where I would spend my days walking around the construction jobsite carrying a big stick (not really) and telling people what to do. That appealed to me because I like organizing things and I get a kick of satisfaction when I see things moving along smoothly.  To be honest, I’m actually better at organizing others than I am at organizing myself. You’d only have to take one peek at the disaster in my garage to see that in action.  Anyway, the reality of my project management career has been that I’ve spent very little time at the actual jobsite, and most of my time with my face buried into schedules, budgets, cost projections, contracts and approving timesheets. Working with a smaller company managing big-ish projects, I had to learn quickly how to be a lot of things: a scheduler, cost controller, supply chain manager and the boss of a crew of people, all at the same time. If someone would’ve told me back then that “cash moves at a different pace than activities”, I would have stared blankly back at them thinking, “ya, so what?”  Because I didn’t really understand the full implications of that.  Budget, committed, actual, incurred, accrual, invoiced – I kept seeing words like this, but I considered them to be the domain of accounting and not project management. Oh, how wrong I was. To understand the difference between a Spend Forecast versus

The WIP Report – It’s CFO Candy

Why the WIP Report is so Important In addition to effectively managing the costs and schedule of your project, it’s critical to stay on top of your Work in Progress or WIP.  WIP is critical to monitor. You, your CFO and your investors need to know just how profitable your project is, how much of the project has been funded by your customer, and how much has been financed by you.  Combining WIP information with project profitability and performance metrics, will give you a complete picture of the financial health of your project or your program.   Work in Progress looks at the following key metrics on either a single project or a portfolio of projects currently underway: Total estimated cost Total estimated revenue Total estimated profitability The revenue earned to date Estimated cost to complete Estimated remaining revenue The costs spent on the project(s) to date All billings that have been completed for the project(s) and billable remaining   Regularly reviewing your Work In Progress allows you to quickly identify any under or over billings that may be taking place in your project.  If your project has been financed by the bank or an underwriter – or when your CFO needs information on your project for his financial forecast – your WIP Report is going to be a critical report in your arsenal of effective project management tools. If you can produce a detailed WIP report and send that to your CFO on a regular basis, you'll make their life way easier - it's like filling their candy jar.   The WIP report in 4castplus combines the above mentioned metrics along with much more to give you a complete picture of your organization’s work

Top 4 Construction Invoicing Tips to Accelerate Cash Flow

 Accelerate Your Cash Flow You’ve spent considerable time and effort in running your projects well.  You make sure that your customer is kept very happy during project execution, and you’re expertly handling the multitude of challenges that come along with a complex project.  Your project is going well, your customer is happy. But you still can’t seem to get paid on time. What’s with that?   There’s no doubt about it, keeping your project healthy and well managed has a huge impact on achieving healthy cash flow, but that's really only part of the overall strategy of getting cash flowing happily into your organization.   The other half of it – the half that can really bite you – is making sure that you invoice efficiently, and your customers pay you efficiently.  Many construction organizations spend a great deal of cost and effort towards invoicing their customers in an attempt to improve their cash flow performance. The challenge, however, is that they’re using the same old process, the same old tools, subject to the same old risks.  And they’re getting the same old results: accounts receivable aging stretching to 120 days, accountants and auditors insisting on an allowance for uncollectable accounts, board members and bank managers tapping their fingers waiting for the latest receivables schedule.   It’s no wonder when you consider the inherent challenges that practically all construction companies have to deal with in getting their invoices out the door.  Those challenges, however, can be minimized, and cash-flow significantly accelerated by implementing the following four cash flow management strategies. Consolidate information. When your key project data resides in multiple systems, there is great risk in access, ownership and status of that data. When you consolidate

To Get Paid on Time – Organize Your Job Billing

End-of-month or end-of-week scrambles to get invoices together to bill your customers can be a soul-wrenching hassle. Especially when the systems you have to do your job billing are spread out between spreadsheets, paper, a stack of invoices & purchase orders and some reports from financial.  Sitting in a dark office on a Friday night, trying to reconcile it all into invoices while your buddies are at the hockey game – isn’t the best use of your time. On top of that, you’re faintly hoping that, fingers crossed, your customers don’t dispute or find discrepancies with them this time – and you can for once get paid within 30 days. Chances are, though, if everything doesn’t line-up perfectly, there will be phone calls, corrections and the payment will end up being over 120 days.   Invoicing in construction projects has its share of complications that aren’t found in other businesses. Progress draws, holdbacks, time & material transaction billing, retainage, flowing through 3rd party direct costs, split-billing, all the complexities around markup on materials & equipment, and much more. Add to that, the knocks to a company’s reputation that go along with invoicing mistakes, double billing or missed billing. To get it right and keep it simple requires a highly organized, flexible and thorough solution.   Ultimately, everyone’s in business to get paid, and to get paid on time.  Companies and projects can come to an abrupt and grinding halt if they struggle with cash flow issues.  A number of years ago, a very smart man – a man who was seasoned in building many businesses – pointed his fat, hard-working finger at me and said, “You can get a lot of things wrong, but you

Cash Flow High, Cash Flow Low

A friend of mine that runs a mid-sized Oil & Gas services company once shared this little nugget of advice with me, “I tell you what, cash flow is your friend and your enemy. It’s the angry gorilla at the door one day, and a warm spring sun the next day. If you don’t have a good handle on your cash flow in business, you’re in deep trouble.” So true isn’t it?  But what does it really mean? And what can you do to get a good handle on your cash flow? There’s a lot of talk about cash flow out there, but put simply, it’s the term used to define the highs and lows of available money as it flows in and out of your business or project (Wikipedia has a good description of cash flow). The big challenge with cash flow for most businesses however; is knowing when it’s going to be high and when it’s going to be low. It’s rare that there is a uniform, predictable ebb and flow of cash in any business, so having good information and tools to be able to calculate when those winters and summers are likely going to be, is crucial. This is especially true of project-based organizations; particularly those that have to invest heavily in a project before it begins to pay off.  Investing in a project could mean anything from procurement of equipment or materials to just covering payroll for a few months until you receive your first payments on invoices. It could take months into a project before breaking even, and if you have several projects on the go at the same time, having a good read on how & when the

By |June 1st, 2011|Categories: Cash Flow|0 Comments