Protect Construction Job Liquidity

It used to be that contractors could hold onto customer deposits for liquidity until the end of a project, but some new contracts are requiring reimbursements back to the customer as the job progresses. Contractors need to pay close attention to their contract terms to maintain liquidity. It also helps to have processes in place to manage accounts payables such as payments to your subs.  

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In the following video, Long Island CPA and Partner Robert E. White offers tips for sustaining liquidity during construction jobs, and also how a CPA can help with lender relationships. 

Keep these items in mind when negotiating a new job: 

  • Add contract terms to allow use of the customer deposit longer, and to be paid quickly through requisitions;  
  • Monthly requisition requests should account for all anticipated subcontractor invoices, which means that subs need to invoice quickly;
  • Build time into accounts payable for customers to sign off on requisitions before paying subs;
  • Retention is starting earlier in the job to offset the customer deposit, so review terms as to how long the customer can retain final payment and under what conditions; and
  • A CPA experienced with construction contracts and financing can bridge the relationship between contractors and lending institutions.

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