Strategies to Manage Cash Flow

Cash is the lifeblood of your A/E firm. As PM, you must manage the process to get the cash into the door as quickly as possible for professional services performed. There are two financial elements in play here that you must understand: 

1. Work in Progress (WIP). This is a measure of the amount of work in dollars that has been completed, but the firm has not yet invoiced the client. In many cases this also means that you may have already received a paycheck for the work completed, yet the firm has not even sent an invoice for those services.

2. Account Receivable (AR). Once you have sent an invoice to the client for the work completed, it is no longer referred to as WIP—it becomes AR. This is a measure of the amount of money we have billed the client, but have not yet been paid. When you add the two amounts together (WIP + AR) you have an amount commonly referred to as your "project investment." This is the amount of money the firm has "invested" at any one time in the project. 

It is the responsibility of the PM to keep this project investment as small as possible. Here are some effective strategies to minimize both WIP and AR.

Strategies to manage WIP: 

• Bill more often than every 30 days, if the client will accept 
• Ask for a retainer prior to starting the work 
• Bill lump-sum projects on the first day of the month; the PM only has to send accounting a percent complete in order for an invoice to be prepared, so lump-sum in voices can go out at least a week ahead of hourly billings 
• Make sure timesheets are filled out correctly, so valuable time isn't wasted transferring charges before invoices can be finalized 
• PMs need to quickly review draft invoices prepared by accounting staff 

Strategies to manage AR: 

• Understand the client's billing cycle 
• Follow up with the client once an invoice is sent to confirm that it was received 
• Send an accurate invoice—in the proper format with appropriate back-up—as required by the contract 
• Send invoices and receive payments electronically 

Above all, the best strategy to getting paid in a timely fashion is to: Pick the right clients Develop a great relationship with your clients through excellent client service and quality delivery.