Need help with your finances?

1. Invoice quickly

The best way to avoid cash flow problems is to speed up the time it takes to send your invoices.

• Have regular invoicing cycles or set pre-determined stage claims

• Invoice clients as soon as the work is done, rather than at end of the month

• Invoice for any variations as soon as they’re completed – don’t wait until the end of the project!

• Have short payment terms, for example five working days

2. Issue valid payment claims

Following the simple payment claim processes outlined in the Construction Contracts Act can help you get paid on time and avoid timely and costly disputes. For your invoices to be valid as payment claims, they must follow this criteria:

• Be in writing

• Identify the construction contract it relates to

• Identify and carefully describe the construction work you’re requesting payment for

• Identify the time period the work was done in

• State the amount claimed

• Identify how the amount claimed was calculated

• Include the correct due date for payment

• It must say “This is a payment claim under the Construction Contracts Act 2002”

• It must be accompanied by a Form 1, a written notice outlining the process for responding to the claim and the consequences of not responding if payment in full is not made

We recommend getting professional advice to make sure your invoice template complies with the Act.

4. Use accounting software

A good accounting software, like Xero, will help you stay on top of your finances. You’ll find it easier to manage your accounting and tax workload and stay up to date. This will give you accurate financial information so you can budget and project future cash flow. If you’re really not confident with numbers, hire a professional bookkeeper or accountant to manage it for you.

3. Follow up late payments

Getting paid on time is crucial for positive cash flow, so have a process for communication and escalation for overdue payments. For longer payment terms, it’s a good idea to send an automated invoice reminder a few days before the due date.
Immediately a payment is overdue, send an automated reminder that’s direct, but polite. If it remains unpaid, follow up with a phone call and don’t be afraid to take more formal action if you need to. If you’ve issued a valid payment claim and a client is disputing it, they must issue a valid payment schedule that follows the requirements of the Act.

5. Regularly review your business operations

Running a business isn’t ‘set and forget’. Continually review and refine your systems, pricing and expenses to find smarter solutions, increase efficiency and reduce costs. For example:

• Take advantage of technology or apps that will streamline your business processes and save you time

• Are your margins tight because you’re charging too cheaply? Remember that if you use your website, social media and communications to highlight your experience and where you can add value, potential clients won’t make their decision based on cost alone.

• Regularly look at your expenses. Cull or make changes so you have everything your business needs, but not more than it needs

Remember your cash flow needs to constantly monitored. That way you’ll not only know how much money you’re taking in, but how much of it you have available to use.

Amanda is a regular contributor to Inhouse

Published bi-monthly in print and online, InHouse is the official magazine for NZ Certified Builders.

This article featured in the June/July 2023 issue.