Have you ever considered how the creditworthiness of your customers can impact your bottom line? How about how their cash flow can impact your bottom line? When you consider that according to a survey by RocketLawer, 43% of small businesses have customers who are more than 90 days late on a payment, it might be something you should give a second thought to.
For contractors and construction companies who are looking to take on new jobs to maintain and grow their businesses, winning the bid can often make you forget to worry about the possible risks you could face. One risk is that when you are extending payment terms and not being paid in advance you could be taking on the financial challenges of your new client without even knowing it. This applies to your existing clients as well because any company’s financial standings can change at any time for various reasons.
The fact that your client’s creditworthiness directly impacts their ability to pay you may be obvious but many contractors and construction companies often overlook it. You can get this information in a credit report, which gives you information on the business’s trading, credit and financial histories. It also provides a credit rating and limit. All of this can prove to be invaluable information when assessing if you want to work with the client and what payment terms you want to extend.
How long they take to pay
How long your clients take to pay you impacts your bottom line because it impacts your cash flow. Since there are many expenses, such as materials and payroll, which contractors and construction companies have to cover in advance of being paid by your clients you must manage your cash flow closely. So when your clients stretch out the payment terms and don’t pay for 45, 60, 90 or more days you are stuck having to cover those expenses and stress your cash flow.
How to protect your business
One option to protect your business and arm you with the information you need to determine what clients and potential clients are creditworthy and to get paid more quickly, is to partner with a factoring company. When you partner with a factoring company, they handle all the due diligence needed on an ongoing basis. They do this by conducting credit checks that can provide the information you need to make the best decision about what clients you want to work with. The will also give you immediate access to the funds from your unpaid invoices so you don’t have to worry about how long your clients take to pay allowing you to more easily manage your cash flow.