It’s no secret that construction materials are one of the biggest expenses subcontractors have to deal with throughout a project. A contractor’s ability to navigate their way towards better pricing can be the difference between a profitable project and one that ends up underwater.
This is why when Alexander Barthet of TheLienZone construction law podcast asked me to discuss tips for subcontractors for buying smart, I was so excited to join. In this interview, I share tips on how to make cost-effective decisions when procuring construction materials.
We covered everything from how to get the best deal from a supplier to working with a third-party company to take out a loan. We also dove into some of the biggest mistakes that construction professionals make in these processes, and how to avoid them through simple and effective strategies that can result in saving money.
Here’s a quick synopsis, including some key takeaways we wanted our listeners to walk away with:
While all contractors are different, one thing remains true when it comes to purchasing materials from a supplier – you’re always going to get their best price when paying upfront in cash. Paying for materials in cash will result in discounts that help you save money in the long run. The reason for this is the value of cash today versus tomorrow (time-value of money), as well as the risk associated with it. By paying in cash upfront, material suppliers eliminate any risk of not getting paid, and experience the value of holding cash today where they can earn interest.
For example, if a contractor can’t pay their supplier back in 30 days under the terms they negotiated for materials, it’s going to cost them money. Anytime a supplier knows you are paying cash upfront, you’re more likely to get the best possible price from the supplier as they’ll typically bake in a cash discount.
However, fronting all of that cash immediately isn’t easy, and many contractors aren’t in a position to do this consistently. To help shed some light, Alexander and I walk through a few strategies contractors can apply that will put them in a position to pay for their materials in cash.
Table of Contents
How to Enable Cash Payments to Suppliers for Construction Materials:
1. Negotiate an Upfront Draw from Your General Contractor.
This is the best and most affordable option for any contractor. Of course, this all depends on the relationship you have with your GC, but even getting 10% upfront from your GC will help fund your materials at the beginning.
2. Use Cash from Your Cash Flow.
Typically, this option works best for contractors who specialize in large projects and for those who have enough cash flow available. Now, this is a little tough, because contractors always have a backlog of projects going, and this can hinder their ability to purchase materials for a future project. So, it’s important to make sure you have your balances in order for all your projects if this is the strategy you want to take. Lastly, you need to be prepared to lay out cash several months before receiving the associated draw from it.
3. Take Out a Loan with a Third-Party Finance Company.
This allows contractors flexibility and freedom. With this option, the contractor has the flexibility to pay back and pay off the purchase once they’ve been paid for their work by the GC or the property owner. The caveat can be the terms of financing, and the cost of the financing. This is where Billd comes in to offer this easy, seamless solution so contractors can have better control of their business and projects.
Billd purchases construction materials for contractors working commercial jobs, and pays their suppliers upfront. We then offer 120-day terms that allows contractors to receive materials for projects upfront and pay for them over time, while also improving business credit. With Billd, contractors never have to miss out on a project again because of cash flow issues.
To listen to all of the strategies we unpacked, click below for the full podcast.