5 Ways Suppliers Can Manage Cash Flow Challenges When Construction Starts Slowing
According to the Census Bureau, U.S. housing starts slid 14% to an annual rate of 1.55 million units in May 2022, while single family construction fell by 9.2% for the second consecutive month. Housing experts attributed this to rising inflation and surging mortgage rates that decreased the affordability of buying new houses and dampened consumer sentiment. Concurrently, building permits decreased by 7% from the revised April rate of 1.82 million and below the median forecast of 1.79 million permits1. Furthermore, the number of dwellings under construction was at its highest level since the 1970s, due in part to supply-chain shortages caused by the COVID-10 pandemic that haven’t eased enough to make a difference. With new home construction slowing down, it’s essential for Suppliers to find ways to improve cash flow management to stay afloat.
Only Work with Reliable Builders
If you find yourself in a situation where you’re working with a new Builder, do your homework. Check out their creditworthiness by obtaining a financial statement, Dun & Bradstreet report and/or references. Getting reassurance that a client has the financial capability to pay you for delivered supplies is essential to managing cash flow and protecting your bottom line, especially in a down housing market.
Assess Your Accounts Receivable Processes
Long periods between billing and collection are the norm in residential home construction. While being a Supplier comes with risks throughout the construction cycle, payment delays and non-payments can seriously hurt construction cash flow. Ensure your invoices are accurate, stay on top of customer accounts and pay especially close attention to significantly past due accounts. In addition, consider creating and applying standard late-payment fees.
Analyze Your Current Cash and Income Sources
Analyzing your business financial statements will help you determine cash reserves each month and get an accurate idea about your income/payment cycle2. Cash flow projections provide the amount of cash currently on hand, as well as an estimate of what you’ll have in six months, even with slowed new residential construction. If you don’t have a healthy cash reserve, it’s probably not a good time to take on high-risk projects that impair your ability to manage day-to-day operations, including delivery of ordered Supplies to construction sites.
Provide a Realistic Cost Estimate for Supplies
In addition to battling supply chain issues since late 2020, Suppliers will see continued material price escalation over the next couple of years, according to industry sources. By 2024, experts predict material prices will be about 25 to 28% higher than equivalent materials in 20203. In a slow housing market coupled with surging supply costs, it’s more important than ever to only bid on projects that are going to be profitable to your business. Making sure your actual construction costs match your cost estimates ensures you won’t suffer unnecessary losses and also protects your reputation with Builders as a trustworthy Supplier.
Digitize Invoices and Payments
If you still rely on paper invoices, paper checks and other manual processes, this could significantly slow your payment cycle and subject you to fraudulent activity. Access to expedited and flexible payment options provides a choice of how and when you get paid, decreases the risk of fraud, increases your cash flow visibility and minimizes back-office support and manual reconciliation.
Learn more About Hyphen Wallet for Suppliers
Stay ahead in an uncertain home building market by signing up for immediate and safe digital payments with Hyphen Wallet. Auto reconciliation in Hyphen Wallet ensures a fast, accurate financial close cycle and improves cash flow visibility and working capital management. Schedule a demo to discover all the benefits of this real-time payment management system or sign up today.