Companies that perform operations in the construction industry, whether they are specialized re-modeling and replacement service contracts, or new residential or commercial projects, must effectively coordinate their planning, procurement, and execution activities to achieve profitability. Construction industry business owners and managers are intimately acquainted with the concept of retainage, and although the moniker itself may be unfamiliar, it is inherent in every work agreement and contract.
Therefore, discovering innovative methods and techniques for monitoring, controlling, and arranging payments to maximize positive cash flow enables construction industry professionals to realize financial goals and successfully meet their own retainage requirements.
What is it?
In simplified terms, retainage is a monetary percentage of a given contract, retained by the client against the performance of specific levels of completion by the builder. Contractors often refer to this series of payments and its scheduling as draws.
This form of agreement also exists between sub-contractors who engage to perform specialized trades for the general contractor during the scope of work. These remission schedules combine to produce a delicate balance of disbursements and revenue intake, requiring acute attention.
Concept and Reasoning
Contracts in the construction industry are written and arranged, according to the scope of work involved, to protect both the buyer, and the builder, from artifice. An outline is established, which details every aspect of construction, and the remuneration required for each phase of completed work.
This generalized agreement method can be as simple as an initial fifty percent retainer, with the balance due upon completion for subcontractors, or an elaborate compensation schedule on large contracts. Cash flow problems can occur when unforeseen interruptions halt jobsite productivity and progress, affecting draw rates on the project, while other expenditures and settlement schedules mature.
Until now, coordinating retainage schedules to optimize cash flow in the construction industry required an extensive group of professionals and administrators calculating, monitoring, and arranging field site data through a variety of procedures, in conjunction with materials purchases and labor costs.
However, innovations in technology have enabled the development of new software programs specifically designed to increase retainage visibility, and assist in its management, striking the perfect balance between compensation requirements and receiving schedules.
Implementing the right type of software and project management programs, can maximize operational efficiency, and deliver the results that improve contractor cash flows. For more information and construction industry news, click here.