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Glazing Contractors Not Prey to Slower Payments

Post Time:Jan 05,2012Classify:Industry NewsView:238

 

Even though

 

"Our AR days have remained essentially unchanged from 2009 through 2011," says Mic Patterson, director of strategic development at Enclos Corp. in Eagan, Minn. "As a facade contractor, we are among the first on the building site; we follow the building structure as it is erected. The finish workers then follow us as we complete the enclosure of floor area. We are typically off site when the building shell is complete."

 

Jonathan Schuyler, preconstruction executive and partner at Giroux Glass Inc. in Las Vegas, shares as a similar experience. "After review with our team, I cannot say as though we have noticed a drastic change in payment from this year to recent years past," he says. "I would definitely say we have noticed a difference from 2007 to current for obvious reasons, but as far as 2011 vs. 2010 vs. 2009, we have actually started to see things progress back in the right direction."

 

AR days is the average number of days a company takes to collect payments on goods sold. Typically, numbers much higher than 40 to 50 days indicate collection problems and significant pressure on cash flows; numbers much lower than 40 to 50 days indicate overly strict credit policies that might prevent higher sales revenue, according to an online business dictionary. For glazing contractors, that number might be closer to 60 to 75 days.

 

"It is particularly painful for subcontractors when the money flow tightens," Patterson says. "Subcontractors often have upstream contracts that include provisions for delayed payment under certain conditions (as with pay-when-paid clauses), while downstream fabricators and material suppliers want payment in 30 days. Subcontractors too often become the reluctant project financiers in absorbing the difference. An increase in AR days can greatly exacerbate this problem."

 

Part of the stability of Enclos' AR days might be attributable to the makeup of its typical backlog, Patterson says, which comprises fewer but larger projects and yields correspondingly fewer but larger accounts to manage. "Another factor may be the project owner," he says. "Many of the projects we are involved with are owned by institutions and government entities that may provide more consistent and predictable payment."

 

Sound risk management is part of the reason why seele Inc. in New York hasn't had late payment problems, says Attila Arian, president of seele. "We have been blessed with projects, where the owners and owner's representatives realize the importance of paying contractors on time," he says. "It also has to do with the fact that we take risk management very seriously. When negotiating contracts we put a lot of emphasis on cash flow aspects of a project and tend to turn jobs down that include major financial risks."

 

However, some of seele's subcontractors are under more financial pressure now than they used to be a year ago, Arian says. "The substantial increase in government funded jobs, which traditionally require an extended payment processing time and the lack of institutional financing, has created additional pressure, and some contractors are feeling the pinch," he says.

 

Source: http://www.usgnn.comAuthor: shangyi

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