Collections and Retention Trend Metric

Assuming that a contractor’s project team has done an effective job of aggressively billing the project, the biggest variable that remains for cash flow is the effectiveness of collections.

D. Brown Management Profile Picture
Share

A good way to look at this is in your aging buckets as a percentage of the total outstanding, excluding retention.  

Cash Flow: Collections Performance and Retention Trend.

You should see very little in the 91-plus day part of the bar chart, maybe a minor red tip at the worst.  

You should see a trend of the total percentage of your receivables that are 1-30 days or more past due coming down. We have seen contractors get these below 10% with rigorous attention to the collection process

The other trend to look at on this same graph is your retention outstanding. It is very easy for a contractor to get into growth mode and only taking on longer-term projects to have all their cash held in retention.  

Retention outstanding can be dramatically reduced by:


Collections and Retention Trend Metric
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....

Collections and Retention Trend Metric
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....

Levels of Design / Development / Detail - Beyond just Design
Contractors can improve business results by applying many of the same processes and vocabulary to their business that the industry is applying to projects. Consider how the different Levels of Detail (LOD) could be applied to your planning processes.
Capital-at-Risk: Basic Categories and Evaluation for Contractors
Contracting is a capital-intensive and risky business. Understanding the key categories of capital at risk, along with their different risk factors, enables construction owners and leaders to make better decisions.
A Typical Project - Understanding Cash Flow at the Company Level
As contractors face many opportunities in the market it is important to keep cash flow management top-of-mind. Growth eats cash and just a few hiccups in execution can put just about any contractor in a very bad position.