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

November 12, 2018 2 minute read

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:

Negotiating lower retention, retention on labor only, phased retention releases, etc. at the contract level.
Building strong relationships that allow you to ask for reductions in retention throughout the project.
Effective close-out to ensure there is no reason to hold retention.

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....

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