If you’re in construction and eager to go after more jobs, bigger jobs, and better paying jobs, you’re most likely craving increased bond capacity. Typically, surety bond companies will be considering your cash position, so strengthening cash flow is key to growing your company. Construction pros recommend putting a variety of tactics in place to keep the cash coming in. Read on for practical tips to implement, and bonding options too.
Cash-Wise Business Practices
There’s not a magic wand for cash flow, and late payments are a bit of a norm in construction—-but that doesn’t mean you can’t improve your cash position. One way to do so is curtail laissez-faire business practices that have likely crept into your work. For example, if you have not had time to deposit a check or two, haven’t even begun to invoice on one or more projects, or don’t have a structured, ongoing approach for collecting payments, it’s time to wake up. At GB Financial Services, Gary Bartecki offers guidance on consistently converting short-term assets into cash toward improved cash flow. It’s also essential to negotiate expedited payments, and be meticulous with change order management, as Pablo Martell advises:
- To negotiate an expedited payment in a construction contract, clearly define payment intervals around project milestones versus just a lump sum, which can help establish you as a trustworthy, reliable service partner. When possible, consider offering payment discounts and always ensure transparent, crystal-clear payment terms. Ambiguity in contracts or payment terms can breed delays that ripple into cash flow bottlenecks.
- Regardless of whether a change order is initiated by the construction company or the customer, it needs to be handled as expeditiously as possible in order to avoid risks to cash flow and the bottom line – including potential payment denials, disputes and project delays. In addition, prompt and timely handling of change orders can help construction companies lock in the best prices for materials early on.
Even with sound financial management practices in place, slow cash flow in construction does happen, and late payments in a supply chain fraught with disruption are especially hard to tackle. At Construction Pros, Martell observes: “To a certain extent, the cash flow challenge is intrinsic to the construction industry, and we cannot expect this to necessarily change anytime soon. The best we can do is to adapt to it, and construction companies must consider the full range of options…to help preserve and protect cash flow.” Among the options that can be especially helpful when seeking growth are asset based lending lines (ABL):
Rather than considering your operating cash flow, with ABL, a lender will instead focus primarily on the value of your business assets, which can be used as collateral to secure a loan. First on the list is accounts receivable; followed by assets like inventory, equipment, real estate and even intellectual property … .Many construction companies are prime candidates for ABL as asset-rich enterprises that may have variations in cash flow but still need significant capital to help them operate and grow. Another strong advantage of the ABL approach is a relative freedom from the covenants that usually come with more traditional cash-flow lending. An example of this is maintaining a certain interest coverage ratio, total assets to debt ratio or debt to equity ratio. In many cases, you can draw upon your line of credit without seeking the lender’s permission or approval, enabling you to deploy capital quickly and flexibly.
Surety Bonds: Options for Every Builder
In construction, surety bonds are more than mere paperwork; they’re a testament to your financial stability and commitment to completing projects. Colonial Surety Company helps construction companies of all sizes improve bidding capacity, and demonstrate reliability. Our Hometown Bond Program provides local builders with credit based underwriting bonds for up to $250k—no financial statements required.
Got something bigger in mind? No problem. We’ve got something special for you too.
Receive Free Business Credit Scores instantly, just for submitting an easy, speedy Pre-Qual for a surety line of credit in writing. Once qualified, welcome new projects in, as you leverage all the benefits of The Partnership Account® for Contractors, including:
- Written Bonding Limits: Receive your single and aggregate bonding limits in writing.
- Instant Bid Bond Issuance: Gain the ability to issue your own bid bonds within minutes, using our powers of attorney.
- Real-Time Visibility: Use your private dashboard to view your underwriting profile and insightful financial data in real-time.
Surety Bond programs for construction businesses of every size are right here:
Bonding Programs at Colonial Surety Company
Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: Colonial Surety Company.