5 Myths Affecting Your Cash Flow in Construction

Maintaining cash flow can be one of the most difficult areas of running a business. Especially in construction, where long wait time to get paid seem to be the norm. Collecting on invoices in the heart of maintaining cash flow in construction, so how can you get people to pay you on time? We’ll start by busting the 5 most common construction payment myths, so you don’t make any of these mistakes while trying to increase your cash flow in construction.

Myth #1: Don’t Worry About Payment Terms Until After the Job is Done
This is a huge no-no for cash flow in construction. If payment terms are not discussed up front, you may end up working on a job that has unfair terms and there is nothing you can do about it. Especially if you are bidding on a job, always make sure that your payment terms are worded in your bid.

Myth #2: Waving Lien Rights Without Consideration is Unenforceable
Wrong. In many states, it is acceptable to waive lien rights without any consideration. If a customer suggests this to you, this a red flag. There is usually a reason for this, and it is usually one that will disrupt your cash flow in construction.

Myth #3: Don’t Cause Trouble or Offend the Customer
Yes, this could seem like a good theory to live by, but if this is all you do you’ll end up getting walked all over. If a problem occurs on site and you choose not to tell a customer in order to “save trouble”, they will most likely withhold payment. Further, don’t be afraid of offending a customer by asking for them to fill out a credit application. These are all safeguards to your cash flow in construction.

Myth #4: There is No Difference Between “pay-when-paid” and “pay-if-paid”
These two phrases couldn’t be more different. Pay-when-paid usually means that you will get paid, in a reasonable amount of time. On the other hand, pay-if-paid means that if the owner hasn’t paid the contractor, you won’t be seeing any money either.

Myth #5: Accounting Software is Too Expensive to Help with Cash Flow in construction
There is an abundance of different accounting software choices on the market, and specifically, accounts receivable applications are the best to handle cash flow in construction. The prices vary, so there are many options to fit different budgets. These applications can automatically send invoices to customers, keep track of your communications with them, set workflows to see who is furthest behind on payments and automatically make those customers a priority on your call list. Keeping all of this information in one place makes collections easier and more efficient, getting you paid faster.

Some of these myths may seem harmless, however you don’t realize how much they can truly be hurting your cash flow in construction. Making sure you’re aware of what the lien right are in your state and keeping an accounts receivable action plan on hand are the best ways to ensure that your cash flow is in order.

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