Experienced construction business owners may think that only beginners suffer from cash flow woes, but this is far from the truth. Cash management in construction involves constant monitoring of each aspect of the business, from controlling expenses to collecting receivables. Any misstep in this process can and will have an impact on an organization.

To protect a company’s financial interests and prevent costly mistakes, awareness of common cash flow errors is vital. Here are some of the common mistakes that hurt a construction company’s cash flow.

1. Friction between the finance and sales departments

The sales department is concerned with increasing the company’s revenue while the finance department is concerned with profit and maintaining a positive working capital. If there is friction between these two departments, a construction company’s cash flow may be affected.

Conflicts that arise between these departments are largely because they are not always on the same page when it comes to their specific goals. The sales department is responsible for getting more clients and projects to increase revenue. On the other hand, the finance department deals with billing and collection. Sales wants to close the deal while finance wants to reduce financial risk. So when the sales department brings in more clients with less than favorable credit terms, the finance department will have a difficult time collecting receivables and the company may resort to using its cash reserves.

Improving the relationship between the sales and finance departments is the responsibility of organizational leaders. They should facilitate open communication between the two and mitigate conflicts that may arise. The finance department should invite the sales department to join in the revenue forecasting process. The sales department, in turn, should justify their credit requests. The inherent conservative approach of the finance department will blend well with the sales department’s optimistic outlook to create cash flow goals that are realistic and attainable.

2. Bottlenecks in the cash management process

Cash management is a vital element in ensuring a company’s financial stability and solvency. It involves improving liquidity, choosing appropriate investment vehicles, decreasing the time between billing and collection, and increasing collection rates.

In the construction industry, where delayed payments and even nonpayment are frequent, successful cash management is essential. Construction businesses need to employ sustainable strategies to deal with fixed expenses and operating costs while waiting for their receivables. Bottlenecks in the cash management process will force a company’s hand—leaving them unable to deal with unforeseen expenses, delaying payroll and halting growth.

Streamlining cash management processes will improve overall cash flow. For example, construction companies should take advantage of automation to regularly send invoices to customers and follow-ups for at-risk receivables.

3. Poor data management

Trouble in maintaining good quality data plagues the construction industry. According to McKinsey, the construction sector has been slow to adopt technological innovations and is among the least digitized. As a consequence, data collection is inefficient and the quality of the data is poor.

There are several ways a company makes mistakes in managing data. Human error is the most common. Errors in data entry, such as a client mistyping a contact number or an employee putting the wrong address, cause delays in processing and can be difficult to correct. For example, sending the invoice to the wrong address will result in delays in payment if not noticed immediately.

4. Granting credit without vetting the client

Another common mistake in the construction industry is closing deals without due diligence. Before granting credit to a customer, it is good practice to check their history.

One of the best ways to do so is by asking your contacts if they have partnered with a potential client before. Getting references from previous suppliers and asking them if the potential client has a history of timely payments are good practices that companies should employ when vetting potential customers. Another way is to do a background check is through publicly available records—many of which are online—where court records and notice of liens are accessible. If there are customer reviews on forums and social media sites or complaints lodged with the Better Business Bureau, include them in the assessment.

Cash flow issues are some of the biggest challenges of all business owners. By taking note of potential pitfalls in business operations, construction business owners can mitigate future issues and keep the company in the black.