Accounts Payable & Accounts Receivable Management For ContractorsFebruary 1, 2024

With tight project timelines and narrow profit margins, construction contractors need to maintain positive cash flow to stay solvent. Managing accounts payable and accounts receivable efficiently allows firms to optimize cash flow and improve profitability.

Here are some tips for contractors to improve AP and AR:

Accounts Payable
– Take discounts for early payment if cash flow allows
– Prioritize paying most critical vendors first
– Consolidate payments to vendors used across multiple jobs
– Negotiate longer payment terms with vendors when possible
– Automate approval and payment processes for efficiency

Accounts Receivable
– Build invoicing into payment schedule milestones for each project
– Submit invoices and lien waivers immediately upon milestone completion
– Follow up on past due accounts quickly and consistently
– Offer incentives like discounts for early payment
– Leverage technology to automate reminders and status tracking

Proper management of payables and receivables reduces administrative costs of back-office work for contractors. More importantly, it accelerates cash inflows while controlling outflows. With optimized AP and AR, construction firms gain flexibility and resilience to handle the ongoing ebb and flow of construction finances.