Small contracting business owners have their eyes on one thing: the successful growth of their companies. Business growth is exciting, but it also presents some operational challenges.
As client rosters grow, contracting businesses have to figure out how to staff an increasing number of projects, which gets trickier as more and more work comes in. All the other business operations need to expand to handle increasing volumes accordingly. Finally, the accounts receivable practices will need to scale to keep billing and analysis up to date.
When your construction business is small, you can get away with accounting just about any way you want. Pen-and-paper checklists? Sure. Spreadsheets? Okay, why not!
But the more supplies you need, the more accounts you're keeping track of, and the more employees you're paying, the more complex the whole process becomes. Before long, you forget to invoice for your work, you're two months behind in billing, or you're going crazy trying to keep track of overdue payments. That lack of cash flow can cost your business dearly.
The bottom line is spreadsheets just aren't going to cut it anymore. Luckily, better tools are available that help you scale your construction business as you grow to avoid many of those predicaments farther down the line. Appropriate AR scaling can make the difference between barely getting billing done and having a cash flow cushion on which to grow your business.
Here are some steps you can take right now – even if you're still a small business – to get yourself on track to shatter your business goals.
What makes construction accounts receivable practices different
The accounts receivable process is unique for construction compared with other businesses in a few ways. The first differentiation is that construction businesses need to manage their accounts separately for each project and analyze the profitability of each one individually.
For every project, a company needs to track ongoing change orders, mobile workers who may be on different jobs each day, and manage several worksites, each of which will have varied costs and payment rates. Equipment will roam from site to site, too, and any billing scheme needs to factor in that cost variability.
Finally, construction projects may last a long time, so the accounting system may have to arrange for a schedule of multiple payments to keep cash flow regulated.
What scalability can do for your business
The bottom line requirement for any construction accounts payable system is maintaining cash flow. Contractors tend to put out a bunch of money upfront and then wait an average of 83 days to get paid for the work. Meanwhile, they're trying to shell out even more money to keep the work going.
And growth costs money. You need to make sure you have enough working capital left once you shell out on new projects. Scaling can help you collect money more efficiently and give you the tools to recognize when you’re falling behind.
Scaling accounts receivable means making this whole process move along faster and with less effort so that your contracting business can move forward with confidence that the cash will come in.
Simplify and speed up the process
Scalability efforts should focus on quick, seamless billing and payments to help maintain the funds in, funds out cycle. Doing so will allow you to pay for the necessary expenses involved with business growth, like hiring additional employees or purchasing new tools.
For instance, initiating payment reminders and including payment links on digital invoices can encourage owners and contractors to complete payment sooner, which drastically impacts your business' cash flow.
Adding a direct MazumaGo payment link into a digital invoice has allowed contracting businesses like NZ Builders to speed up receivables by up to 10 days, compared to collecting payment via paper check.
Lean on technology to scale your AR
Luckily, upgrading your payment processes doesn't have to be big and complicated. Technology has provided the tools you need to create invoices and send and accept payments directly to and from your bank account to equip you to handle greater volumes of work.
MazumaGo facilitates fast payment for construction businesses by collecting funds via email through direct bank transfers, so you can do away with wasted time writing, signing, and distributing checks or correcting botched ACH transfers.
And that's not all digital tools can do.
New AI tools can use past data to determine which of your accounts may be least likely to pay up and even predict an expected timeline for payments on your invoices. Through these methods, AI tools can give you the information to make spending decisions in your business.
Paper invoices are a thing of the past. You can send digital invoices via email with unique payment links included, so your customers can settle up painlessly. Adding a MazumaGo payment link into your digital invoice allows your clients to pay any amount within a few mouse clicks – anywhere, anytime.
Once you send an invoice, MazumaGo lets you track payment in real-time. You'll even get an estimate of the day the funds will be in your account so that you can manage your cash flow better.
It is critical to follow up on payment requests promptly. The longer an invoice goes unpaid, the more challenging collection will be. But keeping track of what's paid and what's unpaid and looking up contacts for your outstanding invoices can take a lot of time. Luckily, follow-up is quicker with digital invoices, and MazumaGo lets you send payment reminders to get follow-ups done quicker and keep the money rolling in.
Is your AR Process scalable?
Scalability in accounts receivable comes down to simplified systems and automation – how much of the work you're currently doing to bring money in the door can be done faster or even automatically?
Your systems should be capable of handling higher volumes of clients, invoices, and incoming payments, so you can keep your cash flow in check. After all, poor cash flow is responsible for an estimated 82% of small business failures.
This is especially true for construction. Contractors rely on regular payments to keep a project moving forward, but they are often hindered by the complexity of running multiple projects, along with a chronically slow payment rate.
Check out how MazumaGo can help simplify your accounts receivable by helping you set up bank-to-bank transfers over email, including links on digital invoices to remove barriers to payment. Keep money flowing to your growing business.