Fall 2012 issue of Horizons

Collections Risk With margins reduced due to the economic slowdown, delays in receiving payments or failure to collect for all work performed could be disastrous to a company’s cash flow. Collections must be a daily mindset and not an end of the month activity. This mindset begins with the fact that collecting your accounts receivable is a right and not a privilege. The rights of the company must always be protected, although it may involve offending a customer. It may help delivering large invoices in person or personally collecting checks to help reduce excuses and delays. It is also important that contractors focus on being great “closers” in order to speed up recovery of the retention as soon as possible. Owner And Contractor Risk During challenging economic times, it is critical to carefully evaluate doing work with others that may be on shaky ground. Regarding owners, it is important for contractors to diligently research potential customers. This includes examining work previously performed, character, credit, payment history and ethics. For general contractors, it is important to pre-qualify subcontractors and vice versa. All parties need to closely analyze the financial stability of those with which you will be working. There is no doubt that your success and profitability on the project is entwined with theirs. Operational Risk It is a natural tendency for contractors during lean times to take on work—any work—in order to utilize existing company resources. This often results in bidding on work outside of their “sweet” spot or areas of expertise. Contractors should be especially careful bidding this type of work.

Challenges include not having the technical expertise to properly execute the project in a quality manner, not being familiar with certain contract provisions and specifications, or leaving important elements out of their bid. In addition, operating in a new geographic region to gain work can be risky for contractors that are not familiar with local labor and state/local regulatory approvals. Safety Risk Safety programs are the heart of many construction risk management plans. With already low margins during the slowdown, proactive safety programs can generate significant cost savings for the contractor. These include lower insurance premiums and legal fees and reductions in lost time from accidents and injuries. While insurance can mitigate some of the economic risks, it is critical to focus on risk avoidance and on loss control. The most successful safety programs are ingrained into the very culture of the company to ensure that every worker returns home safely each night.

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