AWI e-briefs - 01/22/2015 (Plain Text Version)

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Improving Cash Flow: Evaluate Your Customer’s Credit

A series of articles from the American Subcontractors Association

One of the key factors in assuring your company’s cash flow is to evaluate the credit of the General Contractor or construction manager with which you are about to do business.

In some instances, the process can start before you decide to bid. You may be surprised about how much information you can find about a prospective customer through an Internet search. In addition, credit services such as Dun & Bradstreet may be helpful in identifying the size of the General Contractor, the experience of its officers, and any current major problems. D&B reports, however, often have limited value in evaluating the contractor’s true financial worth. Similarly, the contractor’s financial statements often are difficult gauges because of progress payments and retainage, which may be inconsistent in reflecting monies owed in relation to monies collected.

The best initial source of credit information is the contractor’s bank. Therefore, you should request the name of the bank or banks that the contractor uses. You also may want to consider requesting that your customer provide you with at least a partial copy of the prequalification form that it provided to its customer. See ConsensusDocs Form 221, “Constructor’s Statement of Qualifications for a Specific Project” for a sample form.

Finally, do not overlook any previous experience you have had with the customer. Negotiate payment terms tailored to address any past abuses that you have encountered with that customer on earlier jobs. The exchange of information with other trade contractors also can be helpful in getting an idea of the customer’s character and ethics, as well as paying habits. Many ASA chapters conduct a Business Practices Interchange. If the customer is a high credit risk, try to get a check for material before starting on-site labor. Also, be sure to establish a clear contractual right to stop work or hold up completion of your installation if your payments are not kept current. For major risks, consider some form of direct disbursement, joint checks, escrow or similar arrangements.

This article appeared in the June 26, 2014 edition of ASA Today.  The article is reprinted with permission of the American Subcontractors Association (ASA).

These and other articles in ASA’s “Improving Cash Flow” series which will appear in upcoming editions of AWI e-briefs often provide links to additional resources provided exclusively to ASA members in ASA’s “Members Only” section of its Web site, www.asaonline.com.


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To explore membership in ASA, AWI members can visit http://bit.ly/1slhHef and click on “local associations and state organizations” to see whether there is an ASA chapter located in your state.
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