Also known as cash receivables, accounts receivable is money owed to a construction business from its clients. Accounts receivable is shown on your balance sheet as an asset.
In this video…
This video reviews important aspects of accounts receivable, including the best time to bill your customers.
What is Accounts Receivable?
Accounts receivable is money owed to your construction business by your clients or customers, and it shows up on your balance sheet as an asset. Managing your accounts receivable is key to the livelihood of your business. The most important thing to remember is: bill early, bill often. It’s so easy to fall into the trap of being too busy working and getting the project done to bill in a timely manner.
The Best Time to Bill Customers
When writing your contract, pay special attention to the terms. How often do you get to bill? How long after billing do you get paid? In most cases, it’s best to bill right after processing payroll.
There are several invoice formats used in construction: progress billing, usually percent complete by line item; time and materials, and cost plus a fixed fee; or unitary by the unit built or installed, draws at a specific point of construction, as well. If you need help deciding which invoice format will work best for you, give us a call. You’ll find sample invoices in the resources section.
Managing Accounts Receivable
Now that you’ve finished building your construction jobs, it’s time to collect payment. It’s important to manage your receivables by reviewing your accounts receivable list often. There are many formats of accounts receivable, such as the aging report. This shows past-due receivables. Remember, the older the receivables get, the less likely you are to collect them. So again, collect early and often!
In the next video, you’ll learn about accounts payable.
Next Video: Accounts Payable