Steel Advice - The Fabricator's Resource
Dedicated to support the steel fabricator with real world solutions to real world problems.
Accounts Payable, meet Accounts Receivable!
In dealing with this challenged economy, contractors all around are looking at the financial strength of the companies they are dealing with. Everyone is bidding the work tight to keep the doors open and people working. Cash flow is paramount, and it is the timing of the cash flow that is what keeps the projects moving forward. No one wants to be left dealing with the consequences of an uncompleted project because the subcontractor ran out of money.
The subcontractors are actually financing the work being done. Everyone is on a 30 day clock from billing to payday. Subcontractors rely on the cash flow to be timely, and move forward with the idea that the companies we are contracting to will hold true to their obligations. Even so much as a hiccup will have a far reaching and long lasting ripple affect.
Initiate a conversation during your first project meeting about the timing of the cash flow and billing procedures. It is important from the beginning of the project that the billing for the first delivered items happen right away and that the receipt of those payments will meet the payment requirements of the vendors and subcontractors providing them.
The finances of the subcontractor are governed by the contractors they are working for. It is important that the project cash flow requirement be maintained at every step of the project. Ask up front about the documentation that is required for the billings. Make sure your billings go out timely. Follow up with the accounts payable department to be certain that all the information they require is correct and complete. Verify that the contractor's project manager has approved the billing. Make sure that these steps are done with enough time for correction to maintain the timing of the payments required to meet the project cash flow needs.
Don't allow one project to pay for another if you can help it, as this type of creative financing may lead to additional cash problems. If your projects are larger, a budget including the costs of labor, materials, fasteners, coating and shipping may need to be created for each planned delivery (and billing) in order to keep the billings accurate.
Project negotiations at the get aquatinted meetings always seem to be about the fabricator giving the contractor everything they need to get the project moving forward as quickly as possible. Seldom, if ever, are project finances discussed.
Cash flow is the primary factor in getting a job moving forward, but the specifics of that function are usually not worked out until the first billing is due or that first payday doesn't show up on time.
Contractors want their shop drawings right away, but the billing cycle for the drawings needs to meet the payment requirements to the detailing subcontractor so the fabricator is not forced to finance this portion project.
The timing of the material order is crucial to having materials on hand for when the shop detail drawings are released. Discuss a billing of the materials to be ordered, as this will help to keep the project financially sound.
The Elephant in the Room