Cashflow

Question 1

Why is cashflow managament important?

Answer 1

It ensures that a contractor has enough money to continue a project before they are paid for already completed work.

Question 2

What is a typical time between an invoice being raised and it being paid? What happens if this is late?

Answer 2

Typically it takes 30 days for an invoice to be paid. If this is late, it can create risk for a contractor.

Question 3

Give 3 reasons why cashflow projections should be calculated?

Answer 3

• Lenders only provide a finite credit limit.
• Overdraft charges should be included in the contractor contract.
• Can help with schduling: activties with float can be scheduled to decrease amount of overdraft.

Question 4

What is a mobilization payment?

Answer 4

A mobilizaiton payment is money requested upfront that shifts the revenue profile and reduces overdraft spending.

Question 5

What is retention and why are they used?

Answer 5

Retention is when a portion of an invoive is held by the client that is released when the project is completed. It is used to ensure a contractor will complete work to an acceptable standard.

Question 6

Why is retention a point of controversy?

Answer 6

Retention is open to abuse.

Question 7

How is a cashflow projection evaluated?

Answer 7

1. Evaluate monthly expenses.
2. Evaluate provisional interim balance = previous month final balance + monthly expenses.
3. Evaluate overdraft charges = provisional balance x interest rate.
4. Evaluate interim balance = provisional balance + overdraft charges.
5. Evalulate revenue = invoive issues in previous month - retention.
6. Evaluate the month final balance = interim balance + revenue.