Kiwi builders: the cashflow nightmare

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It’s surprisingly tough being a Kiwi builder. Everyone complains about the price of construction, which has gone up dramatically over the past five years. Yet construction companies are still struggling: from Fletcher Building to Bella Vista to the ex-Hawkins Group, the flow-on effect from large businesses who can’t pay their creditors means the small contract builders get stuck with cashflow nightmares.

How does it happen?

  • A larger, well-established company uses you as subcontractor and you assume that they have the money to pay you – no reason to think otherwise.
  • You spend your money on materials and possibly other subbies.
  • Your big client doesn’t pay you.
  • You’re uncertain about chasing money from someone who’s also potentially going to put a whole lot more business your way, and you’re a one-man-band so there’s nobody else to do it for you.
  • You’re really busy doing your work and your invoicing isn’t top of your priority list; you’re tired at night and you don’t get around to doing the accounts.
  • The client says they’ll pay at a certain time, and you believe them, so you keep working and incurring more costs.
  • You always pay your debts, so you’re the one left out of pocket.
  • If the client or the project becomes insolvent and is liquidated or bankrupted, you may end up dragged into the same quicksand.

Unfortunately we hear these stories often from our new clients – we are experts in construction sector finance and assurance. There are ways to make sure this doesn’t happen to your building business. To protect yourself it takes time and commitment to having protective systems in place. For instance:

  • Changing your payment terms so your outgoings are always matched by money coming in.
  • Being ruthless about being paid. If the money stops arriving, so should you.
  • Treating your invoicing like it’s as important as the actual construction, because it is. Not leaving it until late at night.
  • Chasing arrears earlier and more aggressively.

Turning down work if the client has a history of non-payment. Not working at all is better than working and not getting paid. At least if you’re not working at all, you can go out and quote on jobs with a chance of making you some money.

Keeping our financial information right up to date means we can also analyse where your biggest profits are coming from: Who are your best clients? Which projects have the biggest margins? That helps you to know what work to pursue in future. If you’re a builder who wants to avoid being caught in a cashflow nightmare, we can help.