7 Back-Office Productivity Tips to Boost Subcontractor Cash Flow

In construction, the field and the back office are an organization’s yin and yang—one can’t exist without the other. While field crews perform the work required to generate revenue, the back office manages it, ensuring the company's financial health and ability to take on new projects.

But keeping these two teams in sync can be tricky—especially as your subcontracting business grows. Communication breakdowns or slowdowns can create ripple effects that impact cash flow and slow growth. To prevent this from happening, here are the best tips to improve back-office efficiency in construction.

1. Examine what’s working—and what’s not.

As your business grows and changes, the methods you once relied on might not be so efficient anymore. It's important to take a step back and evaluate your current processes. The best way to do this? Talk to your team. 

Get their insights by asking questions like:

• What are you currently working on (both as an owner and contributor)?
• How would you prioritize the importance of each of these tasks?
• How long does each task take to complete?
• What capabilities are required to fulfill each task?
• Are there any areas of friction that inhibit your ability to complete your work?
• How effectively do you feel certain workflows meet company goals and objectives?

This exercise will help you identify areas that need improvement and tasks that aren’t worth the time your team is putting into them. By eliminating or automating these workflows, you can reduce errors and boost productivity. Plus, your team will appreciate being involved in the process, making it easier to get their buy-in on any changes you do eventually enact.

2. Negotiate favorable payment terms.

We talk about this a lot: the contract sets the foundation for how and when you get paid. So, you want to ensure that the terms set within it are fair and reasonable for the work you’re taking on. 

Key areas for negotiation include:

• Extending payment terms
• Securing discounts for early payment
• Establishing reasonable payment milestones
• Structuring retention percentages, release conditions, and variable rate structures
• Exploring alternative financing options 

In addition to those points, it's crucial to stand firm on these two critical areas:

1. Avoiding "pay-if-paid" clauses: These clauses make your payment contingent on the client (typically the general contractor) receiving payment from their own client (typically the owner), introducing unnecessary risk. Insist on "pay-when-paid" clauses instead, which provide more certainty to subcontractors.
2. Protecting your lien rights: Lien rights are a vital legal tool for subcontractors. While many states prohibit waiving these rights in contracts, it's essential to be aware of your local laws and ensure your contract preserves this protection.

Before entering any contract negotiations, understand your costs, including materials, labor, and overhead. This knowledge will empower you to negotiate terms that are both fair and realistic.

If you require assistance with any aspect of contract negotiation, consult your legal team. They can provide expert guidance on contract law and help protect your business interests.

3. Improve collaboration between the field and back office.

Effective communication between project managers (PMs) and back-office accounting teams is crucial to avoiding potential financial discrepancies that could negatively impact your business. Some tips for streamlining field-to-office communication (and vice versa) include:

• Building a real-time ecosystem: In a recent article, our co-founder and CEO explained that the key to success in complex industries like construction is getting the right information to the right people at the right time. This involves digitizing key areas of your business to promote data accessibility, real-time information sharing, and accuracy—key to fostering a culture of shared ownership and collaborative decision-making.

• Defining clear roles and responsibilities: When everyone knows who's responsible for what—particularly with billing and collections—communication becomes clearer. This reduces delays, prevents misunderstandings, and helps to resolve issues more quickly.
• Leveraging PMs to help with collections: As the boots on the job site, PMs have a unique vantage point for facilitating payment discussions. Empower them to take a more active role in collections by training them on key financial aspects like cost management, change order procedures, and proactive communication with clients and the back office. This enables PMs to effectively track payment milestones, address potential delays, and contribute to faster collections. (For a deeper dive into how to achieve this, check out our cash flow secrets webinar.)

4. Regularly analyze A/R aging.

The faster you get paid, the healthier your business. And keeping constant tabs on your accounts receivable (A/R) aging is key to facilitating this. The metric that’s most helpful in resolving and preventing cash flow slowdowns is your days sales outstanding (DSO)—the number of days between submitting a pay application and receiving payment.

As we discussed in this blog post, monitoring DSO helps subcontractors spot payment trends across projects and clients, which is helpful for:

• Seeing which GCs pay them the fastest—and which pay them the slowest;
• Creating accurate billing and cash flow forecasts;
• Making strategic bids for projects that will yield the fastest payments; and
• Developing a targeted approach to securing past-due payments, otherwise known as an A/R escalation plan (more on this in just a moment).

Naturally, the easier it is to analyze your A/R data, the more likely you will stay on top of it. That’s why subcontractors love Siteline’s A/R dashboards and reports. With this feature, you can instantly see the status of your outstanding invoices across all projects, filterable by project, office, PM, and GC. This makes it easy to pinpoint exactly where there are kinks in your cash flow, and take the necessary steps to get back on track.

5. Review billing projections to predict backlog.

Leveraging billing projections is another essential step for identifying potential cash flow issues early on. It’s kind of like having a crystal ball for your business’s finances, which can ultimately help you:

• Spot potential cash flow issues early, giving you time to adjust your spending and explore cost-saving measures (e.g., expense tracking and control, regular budget reviews, cost benchmarking, and supplier negotiations).
• Proactively manage your backlog by identifying slow periods and initiating action (e.g., ramping up marketing efforts, diversifying services, or strategically scheduling projects) to keep revenue flowing.
• Improving operational efficiencies by aligning team workflows, project schedules, and staffing levels with the expected workload.

Creating reliable projections requires that you maintain accurate billing records, establish clear billing processes, and—similar to the point above—use software like Siteline to analyze historical billing data and generate projections.  

6. Create an A/R escalation plan.

A well-executed A/R escalation plan is one of the biggest tools in your arsenal for reducing A/R aging and strengthening your cash flow.

We take a critical look at what goes into creating an A/R escalation plan in this blog post, so take a look if you’re in the midst of establishing or refining your own. In the meantime, here’s a summary of what effective A/R escalation plans entail:

1. Immediate response to past-due payments: The longer late payments linger, the harder they are to collect. So as soon as a payment becomes past due, it’s important to take immediate action to expedite its retrieval.
2. A clear follow-up frequency: If your initial payment request fails, consistent follow-ups are key for securing past-due invoices. Determine a follow-up frequency, choose your communication mode (i.e., email or phone), and decide when to bring in senior leadership for additional leverage. 
3. Defined roles and responsibilities: Every step of an escalation process should have a designated owner. Roles will vary from company to company, but clearly defining who owns which stage of the process will reinforce accountability and make it more difficult for past-due invoices to slip through the cracks.
4. Team alignment: Once these details are ironed out, make sure this process is communicated to everyone who has a stake in the collections process. The more coordinated your team is in its collections efforts, the more effective they’ll be in securing your hard-earned cash.

7. Automate wherever possible.

Manual processes in construction back offices are rife with inefficiencies, making them error-prone, slow, and oftentimes overwhelming to your team. This type of work is ripe for technological intervention.

When implemented correctly, purpose-built software, like Siteline, can streamline the redundant, documentation-heavy aspects of the payment process—all while catching the stuff that often slips through the cracks. Some workflows we’ve seen our customers successfully automate include:

• Custom pay app creation and submission: Assembling and submitting pay applications every month for multiple projects is time-consuming and error-prone. Siteline streamlines the entire pay app process, reducing errors and accelerating time to payment.
• Vendor lien waiver collection: A lot of construction companies are still managing lien waivers through spreadsheets, paper lists, email folders, and Post-It notes—methods that can easily lead to mistakes. With Siteline, you can effortlessly track and collect lien waivers from vendors, preventing rejections and delays due to missing documentation. 
• Change order tracking: Similarly, traditional methods for managing change orders involve a significant amount of paperwork. With our centralized change order log, subcontractors save hours tracking down updates, all while providing valuable financial insights for more informed decision-making.
• Proactive collections management: Siteline automatically tracks every pay app, triggers email reminders to clients for overdue payments, and assigns collections tasks to ensure everyone plays their part in chasing down payments. Plus, real-time comments and status updates keep your entire team in sync to get money in the door faster.

Eliminate payment roadblocks with Siteline.

Time to payment is everything in construction. These strategies can be customized to fit your unique circumstances, setting the stage for a more efficient and prosperous year ahead. And when paired with a tool like Siteline, you can take these improvements to the next level.

Subcontractors who use Siteline are experiencing transformative results, such as:

• Slashing their speed-to-payment by three weeks;
• Boosting monthly billing workflow efficiency by 90%;
• Saving 16 hours each month managing change orders; and
• Eliminating compliance holds altogether by streamlining vendor lien waiver collection.

There’s no time like the present—or the start of a new year—to revolutionize your back-office workflows and boost your cash flow. See how Siteline can get you there; schedule a demo today.