Cash flow breaks down in AEC firms when billing is delayed, collections are weak, and discipline slips across the business.
I’ve spent a good chunk of my life watching AEC firms work themselves into a cash crunch while having what looks like a perfectly healthy income statement. Profit is nice. Cash is required. You can be profitable right up until the moment you can’t make payroll. That’s not theory. That’s experience.
So if you want better cashflow, here’s the short list of what actually works, based on everything I’ve written, said, and probably repeated too many times across the Zweig Group universe.
First, start with billing. Not later. Not when it’s convenient. Not when accounting “gets to it.”
- Invoice immediately. If you finished the work, bill it. Waiting even a week slows everything down.
- Bill more frequently. Monthly is good. Twice a month is better. When I was a design/build/general contractor on residential projects, I billed weekly. And I told my clients I expected to be paid when I gave them the bill, not days later. We weren’t a bank and not financing the client’s project.
- Don’t underbill out of fear. If you earned it, invoice it. You’re not doing anyone a favor by being timid.
Now let’s talk about collections, which is where most firms suddenly get polite and ineffective.
- Send follow up invoices, not statements. Clients don’t pay statements.
- Call clients before invoices are due, not after they’re late.
- Make project managers ultimately responsible for collections. Accounting doesn’t have the relationship. The PMs do.
- Stop accepting slow pay as “just how that client is.” That’s a choice, not a fact.
If you really want to make things better, fix your contracts. Most firms are too anxious to sign whatever the client puts in front of them and then act surprised when the cash doesn’t show up.
- Ask for retainers or upfront deposits, especially with new clients.
- Limit your exposure with caps and clear scope. Scope creep without billing creep kills cash flow.
- Mark up all reimbursables by 10% or 15%.
- Drop all slow paying clients and tell them why you are dropping them.
Then there’s utilization, which people in our industry love to talk about but rarely connect to cash.
- Keep your billable staff billable. Sounds obvious, but it’s not how most firms operate.
- Don’t overhire ahead of revenue. Hope is not a staffing strategy.
- Watch writedowns and writeoffs like a hawk. That’s cash you already spent but decided not to collect.
Here’s one that doesn’t get enough attention: Speed matters inside your own operation.
- Get time sheets in daily or at least weekly. If you don’t know what you’ve earned, you can’t bill it.
- Close your books fast. Dragging that process out delays everything downstream.
- Eliminate internal bottlenecks that slow invoicing. Most of them are self-inflicted.
Let’s not ignore pricing, because underpricing is just slow-motion cash starvation.
- Raise your rates when the market allows it, which is more often than you think.
- Stop competing on price for clients who don’t value what you do. They’ll cost you more in the long run.
- Know your breakeven multiplier and don’t pretend you can make it up on volume. You won’t.
And then there’s overhead, the silent killer that can creep up while everyone’s busy.
- Cut expenses that don’t directly support revenue or client service.
- Be skeptical of every recurring cost. Small leaks sink ships.
- Don’t build a cost structure for a future that hasn’t shown up yet.
Finally, mindset, because a lot of this comes down to how you think about the business.
- Cash flow isn’t all accounting’s problem. It’s a leadership issue.
- You don’t have a revenue problem if you can’t collect. You have a discipline problem.
- The firms that win are the ones that treat cash like it matters every single day, not just when it’s tight.
None of this stuff is complicated. It just requires consistency and a willingness to stop doing the comfortable but ineffective things. You don’t need a miracle to improve cash flow. You simply need to act like it matters.
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Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com. |