Q: Our A/R is getting worse each day, yet we try harder than ever to manage this. What is the average collection time and what can we be doing differently?

A: Receivables should be looked at in two parts. One is your direct business relationships with end-users, the other – construction projects. Your non-construction aged receivables should be no worse than 45 days. The key with direct end-user contracts is asking for and getting a down payment. Not only does it help collect less at the end, it improves cash flow tremendously. What is vital to your success, especially in churches and schools, is to first get some money upfront and then managing your contract closeout process. Use this message for your field crew… “take away all excuses by finishing the darn job”!!! Not 95%, but 100%….and to be fair, bill complete at 100%, not 95%.

Government agencies and schools have strict guidelines for payment and they generally follow the rules. We do see many instances where we can improve our invoicing processes and be more aware of the payment cycles. 45 days is pretty typical in non-construction.

Construction contracts are a very different story. It’s getting worse each day. 90+ days is typical. This is a sign of the weak construction economy and GC’s and CM’s looking to use other people’s money as long as they possibly can. We support a “pay when paid” philosophy but unfortunately most other trades don’t. The key is to establish a progress payment schedule right from the onset. Effective project managers will set up a work schedule that includes weekly communications with the other construction managers and the General Contractor. This schedule includes when progress billings and when stored/delivered materials arrived and will be billed. It also includes the work in progress labor utilization report and when your billing will be sent out. Know exactly when the payment cycles are, how the forms should be filled out, and the payables person by name… that will all help.

A fellow NSCA member, on each project over $500k, will actually send his receivable clerk out to the GC or EC to meet their payables agent. This face-to-face meeting is used to establish a relationship and to review in advance all the forms, processes, reports, documentation needed, etc. This takes away the excuses and creates a sense of urgency and seriousness in how you handle finances on each project. I’ve seen it work beautifully for them… it’s a great idea.

You can’t beat them at this game as they have the checkbook, but if you know the rules of engagement you can at least understand the game and play it better. This all results in turning that 90 day + receivables into 60 days. It has to be a priority and an integral part of your project management plan. CW