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Cash Flow - Mud Hound

Mud Hound

The life of a Land Drainage Contractor

Cash Flow



I have no complaints about being a contractor, like all jobs there are some good parts and some bad, but when everything is added up I believe there’s more on the positive than the negative side. As you can probably tell I’m about to talk about one of the bad aspects, but I’m trying not to wallow! One problem which I suspect stalks all contractors and probably most manufacture’s regardless of industry is cash flow.



In the summer months we often have three or four large contracts all going at once. It is obvious that these jobs require materials and labour to put the drains in the ground, materials which have to be paid for normally within 30 days and labour which goes out of the company’s bank account at the end of the week. There is no negotiation, if we did not pay our staff, quite rightly they would soon disappear and if we don’t pay the bills the deliveries required for the next job don’t arrive.



The problem is that most of the time we can only invoice when the job is done (although on larger jobs interim payments are possible) and we give the standard 30 days payment terms. Of course we could alter the payment terms but no doubt other drainage contractors would offer better terms and it seems that 30 days in a recognised standard. The gap between paying out and getting in can be increased by being busy. There are only so many drainage schemes which can be measured up in a day and so many invoices which can be prepared. A back log can develop just then we need to get the invoices out quickly.



A quirk is that cash flow is often a very poor way to judge how the company is getting on. In the summer, when we are flat out, buying loads of materials, paying the guys overtime, and struggling to keep up with the invoicing, the bank account can look horrible, yet the company is profitable. In the winter the reverse is often true, as the summer rush is over and payments start arriving, the bank account swells but the company is not as profitable.



On the whole I suspect that farmers are reasonably good payers, some of our clients pay by return (our favourite ones!) some seem unconcerned and only cough up when it suits them! I suspect that it is not possible to form correct opinions generalising such a varied industry. I don’t think there is a great deal we can do about it, other than try to explain the situation to the bank.




Published 17 February 2012 09:44 by Roburt | [Edit Post]


# re: Cash Flow@ 21 March 2012 13:34

I was once told that if I only remember one thing about business it's this.

Turn - over is vanity, Profit is sanity, cash is king.

Congratulations on the scholarship it is something I am sure I hope to apply for in the future.