Functional alternatives to improve Contractor’s cash-flow

 

FEATURED PAPER

By Martin Deleau

SKEMA Business School

Lille, France

 


 

ABSTRACT

In this world where financial problem become more and more usual, we will looks on different way to improve the cash-flow in contractors companies, via multi attribute decision making and additive weighting Technique we will be able to define the best alternative to be put in place to ensure a good cash flow.

After analyzing those methods we are able to say that by doing a Quick payment to supplier, Adding late payment penalties and Interim milestone payments, the cash flow is improving for good. We can see that by doing small improvements in the payment methods from client and to supplier contractors can ensure a good cash flow.

Keywords: Contractor, Cash flow, Break-even Point, Cash, Profit, Financing

INTRODUCTION

“While last year 591 000 companies were created in France”[1], “53 000 were dying”[2] as studies from Insee and Banque de France can show. What do you think make them die?

“60% of those failed companies say that is due to a cash flow problem”[3], but where are those cash flow problem coming from?

Graph 1. Root Causes Analysis[4]

Those are only few causes for a cash flow problem, there could be much more, it will most likely depend on the size of the company and the sector of activity.

As we can see cash flow is often a problem for company, causes could be multiple and come from various factors.

Even if those numbers are significant, they are concerning the entirety of all companies and not related to their sector or size, indeed it has been proven that the size of the company is influencing the success of the company year after year. We can find that small company has 20% to fail during the first year and 50% before the 5th year according to the Bureau of Labor Statistics. This percentage could be explained by the fact that small companies have less chances to create a cash flow during the first years of their existence.

As we saw cash flow is a problem for all companies and even bigger for smaller ones, the other factor that can make company welling to have more trouble with their cash flow is the way of functioning inside the company. For sure is more complicated to manage cash flow in a project-oriented company, because the company is divided in projects with incomes and outcomes for all of them it’s more difficult to define the cash flow in the company.

Here we can introduce the notion of project management according to the Wideman Comparative Glossary, “An approach used to manage work within constraints of time, cost and performance targets.”[5] The cash flow management is part of it as it helps to work within cost and avoid being late because of cash flow problem.

As you could ask yourself what a project-oriented company is? Contractors are a typical project-oriented company because all their clients are contracting them for a specific project each time.

For those contractors, cash flow is a key to their success and they must take care of it if they don’t want to fail during the first five years or event during their life time existence, in that way there is multiple solutions to reduce the risk of failure because of cash flow and this begin with the cash flow management. The cash flow management is a key to each company and procure various tools to reduce cash flow problem.

Step 1 – Objective Statement

  • What are the primary causes of cash flow problems?
  • What preventative (proactive) steps can be taken to enhance cash flow/reduce cash flow problems?

More…

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Editor’s note: This paper was prepared for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.

How to cite this paper: Deleau, M. (2019). Functional alternatives to improve Contractor’s cash-flow, PM World Journal, Vol. VIII, Issue III (April).  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/03/pmwj80-Apr2019-Deleau-alternatives-to-improve-contractors-cash-flow.pdf

 


 

About the Author

Martin Deleau

Lille, France

 

 

 

 Martin Deleau is a 5th year student at ITEEM, an engineer and entrepreneur school which enhances his overall industry expertise as well as develops his background in management strategy and enterprise architecture. His school provides him a dual competence in engineering and commerce and allows him to be entirely able to work in a complex environment. The engineering competences are delivered by l’Ecole Centrale de Lille whereas his “MSc Project and Programme Management & Business Development” in SKEMA Business School develop his competences in project management. He is certified PRINCE2, AgilePM and currently following TOGAF certification courses. After an 8 months experience in New Zealand as a project intern at Filtec, developing new water treatment plant, he is now seeking new challenging experience in project management.

Through many projects in different fields, he developed a strong experience in project management and business development. He is open-minded, hard-working and is recommended for his leadership skills.

Martin lives in Lille, France and can be contacted at martin.deleau@skema.edu

You can have further information about his experiences on his LinkedIn profile: https://www.linkedin.com/in/martin-deleau-61974075/

 

[1] Les créations d’entreprises en 2017 – Insee Première – 1685. (n.d.). Retrieved from https://www.insee.fr/fr/statistiques/3314444

[2] Défaillances d’entreprises. (2017, March 29). Retrieved from https://www.banque-france.fr/statistiques/chiffres-cles-france-et-etranger/defaillances-dentreprises

[3] Peavler, R. (2009, March 17). Small Business Cash Management Tips for Success. Retrieved from https://www.thebalancesmb.com/cash-management-is-important-for-your-small-business-393118

[4] By Author

[5] Wideman Comparative Glossary of Project Management Terms v5.5. (n.d.). Retrieved from http://www.maxwideman.com/pmglossary/PMG_P16.htm#Project%20Manager