Winning projects is only part of the battle to create a resilient construction business. As Luke Boyenger, fractional CFO and owner of Cruzumi CFO & Advisory, said during our Subcontractor CFO Series virtual event, “We are in the business of generating cash flow. The project is not done until we’ve actually collected the cash.”
To optimize your accounts receivable (AR), you must implement a cash-flow-forward culture where every employee, from the CEO to the project manager (PM), is aligned toward the same goal: bringing money back into the business.
During our recent virtual event, three construction industry veterans shared how CFOs can create or refine internal processes that encourage company-wide buy-in to improve a business’s financial health.
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Create Leadership Alignment Between the CEO and CFO
The foundation of a cash-flow-forward culture is the relationship between the owner or CEO and the CFO. While the owner focuses on the “Why”—the company’s vision, high-level goals, and qualitative identity—the CFO provides the “How” through quantitative execution.
CFOs often struggle to get owners to care about very specific financial metrics. To bridge this gap, the CFO must link any proposed process changes directly to the owner’s personal aspirations. Whether the owner wants to reach a $10 million valuation, prepare the company for a sale, or simply take profit distributions, the CFO must show that cash flow is the engine that makes those dreams possible.
Scenario Modeling to Visualize Potential Impact
One of the most effective ways for a CFO to get CEO buy-in is to use a cash flow forecast for scenario modeling. By presenting two distinct futures and the impact proposed changes could make for the business and the owner directly, the CFO can make the need for change undeniable.
- The Status Quo: Highlight your current days sales outstanding (DSO), working capital position, and any existing constraints on growth or distributions. “This is what our cash position looks like over the next 12 months if we keep our current financial habits.”
- The Optimized Future: Include how the proposed changes would affect DSO, available cash, and create capacity for any of the owner’s goals. “We can generate an additional $400,000 over the next 12 months if we implement a weekly billing cycle and tighter collection SOPs.”
When an owner sees that a specific process change leads to hundreds of thousands of dollars in extra capital, they are far more likely to enforce the accountability required to make these changes stick.
Run a Diagnostic to Evaluate Your Current Systems
Before you can fix your AR, you must diagnose where any breakdowns may be occurring. Kelsey Stone, a former subcontractor and current Relationship Manager at Billd, suggests a two-part audit of your existing billing process:
- Live Observation: Sit through an actual billing cycle to identify friction points and manual work finance teams are doing to chase down payments.
- Historical Audit: Review past billings to see where invoices were rejected or delayed due to non-compliance.
Key questions to ask during this audit include:
- Is billing a paperwork chase because we don’t have the right documentation available when we’re ready to invoice?
- Are we backdating invoices to hide the fact that we were late getting them out, thereby gaming our own tracking system?
- Does anyone actually own the collection process on a project-by-project basis?
Use Contract Abstracts to Stay Compliant and Prevent Delays
Compliance is the backbone of the billing process. If your pay application is non-compliant with the GC’s specific requirements, it goes into the “not approved” pile, potentially delaying payment by another 30 days.
To combat this, Kelsey recommends creating a Contract Abstract SOP. This is a condensed version of a construction contract that pulls out the most critical financial information.
What to Include in the Abstract:
- Billing Deadlines and Methods: When and how does your billing need to be sent to the GC? Is your pay app due on the 20th via a payment platform, or by email?
- Compliance Requirements: Does the project require certified payroll, specific insurance reporting, or particular billing codes?
- Scope and Exclusions: Clearly identify what you are—and are not—responsible for to prevent field disputes that stall payment.
- Ownership: Assign a specific person to manage each requirement (e.g., Accounting for insurance, PM for submittals).
By creating this abstract before signing the contract, you also identify opportunities to negotiate for front-loaded costs such as mobilization, which can provide a critical cash infusion at the start of a project.
Develop An Airtight, Weekly Billing Timeline
Predictable cash flow requires a predictable process. Luke advocates for a weekly billing cycle rather than waiting until the end of the month to push everything out at once. This drip method speeds up collections and reduces the administrative burden on the team.
The 5-Day Billing Cycle:
- Day 1: WIP Review: A meeting between the CFO/controller and PMs to identify every billable milestone and percentage of completion.
- Day 2: Draft Invoices: Accounting prepares the draft invoices based on the WIP review.
- Day 4: PM Approval: PMs must approve or revise these invoices within 48 hours.
- Day 5: Issuance: Accounting officially issues the invoices.
- Upon Invoice Submission: Accounting should update your billing dashboard to reflect the invoice has been sent.
This process must be backed by a standard that people are held accountable to. Without a strict timeline, billing becomes a “Do what you think is right” suggestion, which leads to unpredictable cash flow.
Get Proactive with Collections, Starting on Day 3
Collections shouldn’t begin when an invoice becomes past due. The process should begin almost as soon as the pay application is sent.
The Collection SOP:
- 3 Days Post-Invoice: Have the GC’s accounting team confirm receipt of your pay app. This prevents the common excuse of “We never got your invoice” from surfacing weeks later.
- 5 Days Before Due Date: Send a pre-due reminder to keep the payment on the GC’s radar.
- On the Due Date: The PM reaches out to their contact at the GC to confirm payment is being issued.
- 30 Days Past Due: Escalate the issue to the controller to speak with the customer’s decision-makers.
- 60 Days Past Due: Bring in the CFO and leadership for high-level negotiation.
Make PMs the Tip of the Spear
Project managers are the most critical piece of the cash flow puzzle because they sit closest to the project. They understand the costs, the timeline, and the relationship with the GC’s field staff. If a PM views billing as someone else’s responsibility, the entire system breaks down.
How to Engage Your PMs About Cash Flow:
- Job Descriptions: Explicitly update PM job descriptions to include collections and cash flow. It must be clear that their job isn’t done until the money is in the bank.
- Public Recognition: Shout out top performers in team meetings. Use over/under-billed reports and leaderboards to spark friendly competition.
- Financial Incentives: Tie PM compensation and bonuses directly to timely billing and AR performance. Incentive drives action. When a PM’s paycheck is affected by cash flow, they will ensure costs are tracked and invoices are accurate.
Protect Your Payment Rights Using Pre-Liens
Finally, a cash-flow-forward culture includes protecting the business against worst-case scenarios. Marcos Cordova, Senior Director of Operations at Billd, notes that many subcontractors avoid sending pre-liens because they fear a negative reaction from their GC.
However, sophisticated GCs view pre-liens as a standard, professional business practice, not a threat. By automatically sending a pre-lien 10 days after labor or materials first hit the job site, you ensure your payment rights are protected without making it a personal or confrontational issue.
Improving accounts receivable isn’t just about sending reminders; it’s about a fundamental shift in how the company operates. By aligning leadership, tightening administrative SOPs, and incentivizing project managers to keep collections and billing front of mind, subcontractors can transform their cash flow from a persistent challenge into a competitive advantage. Because at the end of the day it’s about more than winning the contract—it’s about celebrate collecting the profit.
Access the resources to help you implement these processes and watch the full webinar on demand in our resource section.
