1. Revolving Debt
Revolving lines of credit are an important source of working capital, especially in the construction industry. These lines of credit are extended from banks and are typically advanced against current assets such as accounts receivable or inventory. So any change in the value of accounts receivable or inventory can impact your borrowing availability and liquidity. important thing to consider are
- Material Pricing: As prices for materials goes down so does the value of your inventory. A significant reduction in the value of your inventory will more than likely significantly reduce your line of credit.
- Accounts Receivable: It is important to manage your AR and slow paying customers. Banks and lenders will significantly haircut the value of accounts receivable that is past due.
Additionally, look out for any lines of credit with a "demand clause." A "demand clause" means that a lender can call the line of credit at any time. You may not think your bank or lender would do this, but in a downturn banks are hyper-focused on managing credit exposure, especially to a cyclical industry like construction.
2. Accounts Receivable
Monitoring your accounts receivable is always a good idea, but even more so as the economy slows down. Contractors and subcontractors will often delay payments to suppliers and vendors in an effort to preserve cash. While it is tempting to be lenient with customers, especially those with an established relationship, be careful not to let their cash flow problems become your cash flow problems. While standing firm on payment terms may be difficult at first, it is far better than the alternative ,which often results in significant write-offs.
3. Maintain Your Lien Rights
As customers take longer to pay, you may find yourself filing more liens than usual. It's important that you are up to date with your State's lien laws and notice requirements. Additionally, maintain an organized set of records that can be used to support any legal claims. Remember, when filing a lien you have the burden to prove you are owed money. At the very least you should maintain a record of:
- Delivery Tickets
- Credit Applications / Job Sheets
- Lien Notices
- Certified Mail Receipts
Liens are one of the most effective ways for you to reduce your risk and accelerate payment. So while customers may ask you to avoid filing liens, it's important to communicate to them that the filing of liens is to protect both your and their interests.
4. Make It Easy for Your Customers to Pay
In a slowdown you want to get rid of any excuses your customer's may have to avoid payment. One of the best ways to do this is by putting payments in your customers' hands. A literal way to do this is by offering customers a self-service online payment portal as well as the ability to make payments via email and text message. Contractors and subcontractors are often at the jobsite, and so allowing them to pay from their phones or the field is a sure-fire way to get paid quicker. In fact, with Suppli we've seen our software solution reduce days to get paid by over 50% with our customers
5. Accept Credit Cards
We know that margins in construction can be skinny, and that credit card processing fees can represent a 2% - 3% added fee. However, in a slow-down contractors and subs will look to manage their cash flow by utilizing credit card debt. Furthermore, you can offset these credit card fees by enacting a card convenience fee program. So not only are you getting paid upfront, but at no reduction to your margin. A true win-win that gets you paid upfront at no additional fee, while giving your customers additional time to pay. Fortunately, with Suppli we allow you to enable card convenience fees in a truly dynamic fashion. So that means you can create a card convenience fee program that is tailored to your unique needs.