Building owners need to know if their contractors are having difficulties with working capital. Lack of adequate working capital can trip up a successful contractor, and sink a floundering one.

The symptoms of a contractor with working capital difficulties are:

• Offering large discounts of two to five percent for early payment
• Requests for payment prior to the payment due date
• Invoicing for more or less money than entitled
• Failure to invoice in a timely manner
• Loss of credit with suppliers and subcontractors
• Subcontractors and suppliers checking on payments
• Project delays resulting from delayed delivery
• Employees complaining of late payroll checks
• Contractor utilizes an employee leasing company

Once you realize your contractor is having cash flow difficulties, your first reaction may be to hold payments. However, payments are necessary to ensure payroll commitments are made and workers will stay on the project, subcontractors and suppliers will continue performing, and the project management team will continue uninterrupted. Holding payments could push your contractor into default and result in delays and lawsuits.

Rather than hold payments, communicate your concern to the contractor, and arrange a monthly payment plan based on progress of the project. This calmer approach is more likely to result in a win-win.

As always, if you have questions or would like to discuss this topic, contact me personally at 505-934-1577, mickrich@msrci.com. Or, submit your opinion below.