Construction businesses don’t go broke from a lack of work. They go broke from a lack of cash flow!
Or (almost worse) they DON’T quite go broke. Instead, they struggle constantly to make ends meet and use their personal financial resources to patch their business cash flow gaps.
Here’s the brutal cycle I see all too often:
🔁 Buy materials
🔁 Pay trades
🔁 Wait 30, 60, even 90 days to get paid
🔁 Scramble to fund the next job while chasing the last one
Too many construction businesses buy materials for the next job using their own money – while they’re waiting to be paid for the last job. If something goes wrong – like a customer shutting down – their own assets are at risk.
Let’s call it how it is: The construction industry has inherited a broken payment system that puts all the pressure on the builder — and none on the payer.
30/45/60 day credit terms are an industry “standard practice” that essentially requires individual builders to give their customers interest-free loans for work they’ve already done using materials they’ve already paid for.
This accepted “standard practice” actually puts a massive choke hold on your business.
It’s a crazy process – so it’s now wonder that there’s a quietly developing “new normal”.
What is the alternative to “standard industry practice”?
Imagine this:
- You invoice your customer, and the next day 80% of the funds show up in your bank account. (And the rest shows up without you ever making a follow-up phone call.)
- You order materials to benefit from your supplier’s early payment discount – and still have 90-120 days to pay.
This is NOT a fantastical future ideal. This could be you, today. Your business – using two practical, commercial business tools:
- Receivables Management Finance; and
- Domestic Trade Finance.
The combination of just two of these tools allows construction business operators to maximise the Working Capital available in their business. (And of course, you adjust your overheads allowance to cover their fees when you quote.)
1. What is Receivables Finance Management and how does it work?
Receivables Finance Management is an advanced form of technology-enabled Debtor Finance (also called Invoice Finance) that is designed specifically to meet SME business needs.
Debtor Finance has been a commercial finance product since ancient Rome, and in use by big companies since the East India Company. With today’s technology and cloud-based accounting tools like Xero, it’s now a practical, automated tool available to SMEs that reduces administration overheads.
Today, Receivables Management Finance rolls customer payment follow-ups into Debtor Finance – minimising the administration overheads of customer management.
Receivables Management Finance:
✅ Delivers instant cash flow into your business – with around 80% (or more) of your invoice due amounts available immediately.
✅ Frees your business from the overheads of chasing payments with its integrated followup services.
This means that:
✅You get to focus on growing your business, your way.
✅ You avoid compliance problems with the ATO.
✅ Less admin cost in payments followup – which is done by professionals.
✅ Better relationships with customers, suppliers, contractors and regulators.
✅ Flexible, scalable finance as you grow – without further approvals.
✅ You keep your personal assets YOURS.
(Read more about Receivables Management Finance here: https://finforbiz.com.au/finance-options/receivables-management-finance/)
2. What is Domestic Trade Finance and how does it work?
Trade Finance was developed to manage the payment process for slow delivery products from international sources. It began even earlier than Debtor Finance – in ancient Mesopotamia around 2000BC (when deliveries came by sailing boat). In more recent times, it’s been expanded from an import/export tool and applied to local and domestic purchasing.
Domestic Trade Finance is gives smart builders and subcontractors the breathing room to work on 𝘵𝘩𝘦𝘪𝘳 terms because you can:
✅Buy what you need today
✅ Pay your suppliers on time
✅ Benefit from early payment discounts
✅ Still get 90-day material payment terms
With Domestic Trade Finance in your business tool set you can:
✅ Keep cash in your business
✅ Keep jobs moving
✅ Get discounts for paying suppliers early
✅ Avoid compliance problems with the ATO
✅ Protect your cash, your crew and your sanity
✅ Stay in control — no more juggling between invoices and BAS
(Read more about Trade Finance HERE: https://finforbiz.com.au/finance-options/trade-finance/ )
BE AWARE – The use of these tools is spreading
Many builders are so busy building (when they’re not juggling bills, contractors, staff and tax debt) – that they don’t have time to work ON their business. But not all of them.
Some builders DO know about these tools – and they’re using them. They aren’t using them because their business is “in trouble” — they’re just done with letting slow payments hold their businesses back.
They’re using these tools because they work – like Xero works, like nail guns work, like cordless screwdrivers work. They’re using them because they’re more efficient than traditional business finance offerings.
So instead of struggling and scraping and stressing – they’re growing.
When credit cards first entered the market, they were viewed as “dangerous” – then we developed our skills at managing them. When online accounting tools like Xero and QuickBooks first entered the market, a lot of conservative businesses held back – convinced that “They’re too risky and too technical”.
Times are changing – and more rapidly than ever before. Technology-enabled, integrated SME financing tools are a growing commercial reality today.
Make your business cash flow sustainable
A market that expects small businesses to give their big customers interest free loans is simply unsustainable over time. Smart FinTech innovators have solved this conundrum for SMEs.
If you’re feeling like there’s something wrong with your business because you have constant cash flow issues – it may not be YOU.
Want to stop funding everyone else’s business with your cash?
Book a FREE Working Capital Strategy Review today to find out what today’s smart business financing tools can do for you and your business.
