concreteMONTHLY News from the cement and concrete industries
January 2017
MANAGING CASH FLOW
How to balance cash flow and unpaid invoices By Eyal Shinar Homebuilders, like many small businesses, face daunting challenges every day. We speak with small businesses all the time and hear about demanding clients, finding and retaining skilled workers, and managing multiple projects simultaneously. But the one thing they all say is at the top of their list of worries is cash flow. When small businesses in construction have to wait on payments, everything grinds to a halt. Not only is this problem well known, but it is big. My team at Fundbox dug into our data and found that construction small businesses are waiting on an average of $110,348 in unpaid invoices each and it takes them 24 days to get paid. We estimate that this amounts to $139 billion in unpaid invoices across all construction small businesses in the United States. The traditional tools available to small businesses to manage their cash flow are inadequate. Banks provide good services to enterprises, but they’re not able to serve small businesses as well. They require lots of paperwork and can take weeks to get back to you with an approval. And after all that time spent waiting, banks only approve 23.5 percent of the small business loan applications they receive. 30
Concrete Monthly • December 2016/January 2017
Credit cards are another option. But even business credit cards require a personal guarantee. You personally take on the responsibility for each credit card purchase from Home Depot that your company makes. You’d better pay that back when the bill comes due because if you miss a payment that’s a hit to your personal credit, which limits your access to funding in the future. ANOTHER WAY FORWARD I believe there’s a better way forward. A new wave of fintech companies (fintech is short for financial technology) are providing working capital for small businesses like homebuilders. Fintech companies use sophisticated algorithms to underwrite customers and that enabled them to approve more than 60 percent of the small business financing applications they receive – more than double the banks’ approval rate. Plus, most fintech companies don’t require as much paperwork as banks, so you can have your answer in days – if not hours – instead of weeks, resulting in a much better experience. Fintech companies can also provide small businesses with right-sized financing. Whereas banks may struggle to profitably