Why cashflow is king for electrical businesses

Your electrical business depends on revenue to succeed and grow. But no matter how much profit you bring in from design, supply, install, maintenance and break-fix work, what really adds up to business success is how you balance all of the money coming in, with all of the money going out. 

We’re talking about cash flow!

What is cash flow management?

The goal of cash flow management is to ensure that money constantly flows into your business and flows out of the business at a similar or slower pace. That’s how you make the big bucks (profit) and ensure your business not only survives, but thrives. 

The money coming into your business as revenue is your lifeline. But collecting payment from customers when it’s due can be one of the most challenging aspects of proper cash flow management. 

No matter how well-respected, innovative, or essential your electrical company and its output is, if you’re not in control of the books, your business may end up simply treading water.

So how can you take more control over your profit and loss and maintain better cash flow to help your electrical business grow?

Tip #1: Discuss payment terms before you start work

Setting expectations with customers upfront means that there is no confusion about payment as the job or project completes.      The longer the payment cycle, the more exposed you are. Reduce your exposure – especially if you have reason to doubt the financial integrity of your client–by asking for reduced payment cycles, reverse performance bonds, director’s guarantees and/or advance payment on materials (or even free-issue materials).

Tip #2: Keep detailed records of materials and labour

Tracking every material used and time to complete major projects, like commercial electrical installs or wiring, in a single spot will save you time when you need to create an application for payment and subsequent invoice. 

Even better, job management software can track this information and generate invoices right from that information with the click of a button.  

Tracking materials and labour from one spot, all the way from start to finish, also makes it easier to spot if and when a project will go over budget, so that you can be proactive rather than reactive, and ensure the project stays on track. 

Tip #3: Create clear applications/invoices that are easy to understand

Whilst the law requires you only to identify the amount due and the basis for calculation, lack of clarity is a recipe for disaster and not getting paid. List the details of the electrical install or repair in a way that makes sense to the client; any confusion inevitably will create a payment lag on their end. 

It’s also good to personalise your applications and invoices with your business logo and your bank details so that your customer has all the information they need to send payment to you right on the invoice.

Tip #4: Use online application/invoicing & implement payment services

Xero, Quikbooks, Open ECX and PayApps offer an online application and invoicing features that encourage collaboration with your clients, changes made to applications and invoices are updated instantly, giving you real-time information on whether the invoice has been received or even viewed.

This, coupled with a payment service, can really help get that payment in faster. Up to two weeks faster, in fact!

Tip #5: Keep on track with debtors

The squeaky wheel gets the oil. When things become overdue, send reminders, monthly statements or make a phone call.

 Having a process that helps streamline invoicing can help you spot overdue invoices faster and reduce the amount of time you spend chasing up your hard-earned money.

Ready to put these tips into place in your business? simPRO’s  cloud-based job management software for electrical contractors  features tools for quoting, material & labour tracking and project costing plus seamless integration with accounting platforms like Xero. 

Discover more tips for cash flow efficiency in your business at simprogroup.com/cashflow.