Cash Flow Tip 8 - Subcontractor and Vendor Terms and Pay Schedules

Provide the right carrots and hammers to ensure customer service, quality, schedule, profitability, and cash flow.

D. Brown Management Profile Picture
Share
Cash Flow: Tip 8 Subcontractors and Vendors - Terms and Pay Schedules

As important as it is for you to have a great Schedule-of-Values (SOV) with your customer, it is equally important to have great terms with your subcontractors and vendors. These must provide the right incentives (carrots), and when necessary, the right hammers to ensure the right balance between customer service, pricing, scheduling, and quality.  

This requires the same creativity and negotiating skills used to get good terms with your customer. We frequently see two similar contractors with similar customers, subcontractors, and vendors getting VERY different terms.  

Remember that you will not get 100% of the things you don’t ask for.  

Remember to strike a good balance - this is a 2-way relationship. 


  • Eliminate or minimize pre liens or anything that will slow down the payment process on your end.  
  • Extend payment terms to 60 or 90 days if it doesn’t impact profitability or performance.  
  • Utilize tools like AMEX payments where applicable if it doesn’t impact profitability.  
  • Be proactive in developing their payment schedules (SOV) for them. Provide incentives to accelerate getting started and keep them engaged through close-out.

Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Cash Flow
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Work Conversion Cycle and Backlog Run-Off
PARADOX: A contractor can’t focus on the bigger strategic issues until they have a predictable backlog of work. If a contractor doesn’t have a solid market strategy and organizational structure in place it’s very difficult to build a consistent backlog.
Customer Strategy Intersection
Having an effective market strategy is the #1 thing a contractor can do to ensure sustainable and profitable growth. For your strategy brainstorm the following and look for intersections:
Mental Models and Building Strong Businesses
The best builders develop a complex 5D mental model of the project, keeping it constantly updated. Through thousands of interactions with hundreds of people over years they “nudge” the project from concept through construction completion.