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September 18, 2019

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Maintaining Positive Project Cash Flow

October 31, 2019

 

Of all of the things that a project manager needs to look after, ensuring that your project maintains a healthy cash flow through the duration of the project is one of the most important (especially to your senior management). Often though the importance of it not as organizationally emphasized as it could or should be. Here are some tips on how to ensure your project keeps the cheques coming in to keep your project moving forward.

 

Set Out Fair Payment Terms 

No other way to put it – this is crucial. While many project managers may not have direct input into the payment schedule or payment terms of a contract, it’s absolutely important that whoever is negotiating your contract with the customer ensure that there are fair terms in the contract to support a healthy billing schedule. I have seen contracts where the vendor is not paid a dime until go-live, which could easily bankrupt an organization if the project is not managed extremely well. When you, as the project manager, are handed the contract to start delivering, spend the time to really understand what your payment terms are and what you can invoice for and when. Build a cash-flow model that pits your proposed billing schedule against anticipated work to see what your cash inlays and outlays are for the project. If you find there is a period where you simply cannot sustain based on lack of invoicing, don’t be afraid to bring it up – you’re merely doing your job trying to protect the project and your organization. I’ve had projects where we did a change order to start the project that merely re-aligned the payment schedule to be more equitable to both parties rather than heavily favoring just one. You may not be successful every time with re-negotiating these terms but you need to at least try.

 

Define (and Accept) Criteria for Billing Triggers

Nothing can instill desperation in an organization more than needing cash-flow to keep the books healthy and keep the proverbial lights on. Customers can pick up on this, especially if your project is not going well and will often times be even more guarded with their chequebooks in these times. To help mitigate any potential risks of customers not being willing to pay for fairly completed deliverables, make sure that you have clearly defined and accepted criteria that both parties will not dispute when the time comes to send the invoice for work performed. If you are on a time-and-materials project, perhaps you get agreement that you send an invoice at the end of every month for the hours worked in that month. If you are working on fixed price, then you can look at your specific deliverables and come up with clear, concise language that you and your customer both agree to that will allow you to send an invoice when specific items are done. Ensuring you have all of this defined up front at the start of your project removes any opportunity for your customer to refuse to pay when work is fairly delivered per the terms of the agreement.

 

Cash flow for projects running smoothly is rarely an issue – happy customers generally don’t have a problem paying their bills. By getting in front of this early on and ensuring you have the proper structures in place to support a healthy working capital through the life of your project, you are not only letting your customer know on very certain terms how they will be billed and expected to pay, but you’re also ensuring that you have a predictable and consistent approach to invoicing and keeping a healthy cash flow position for your project.

 

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