Insulate Your Construction Business from the Risk of Client Defaults

Insulate Your Construction Business from the Risk of Client Defaults

As a contractor or construction company owner, you are probably well aware that insolvency of private project owners is a growing problem. In addition to the potential for an individual homeowner to run out of funding, recent market changes have spurred on a boom in the proliferation of boutique developers. While these developers often offer lucrative contracts, some are not knowledgeable enough or sufficiently prepared to shoulder the burden of financing an elaborate construction project from start to finish.

When a project owner files for bankruptcy, you do have some legal options to try to recover your losses, but regardless of their outcome, work stops, and payments stop with it. This leaves your contractors or subcontractors unlikely to get paid for any finalized work and your business in a tough position. Although this scenario is not an eventuality, it is essential that you plan appropriately to keep your construction company safe in the event that it happens to you. Being unprepared for client default on a large job could mean the difference between a bump and the end of the road.

One of the most important steps you can take to keep a setback like a client default or bankruptcy from causing your construction company irreparable harm is maintaining a healthy cash reserve. By keeping operating capital on hand, you protect yourself from normal growing pains, like slow periods as you build your business, as well as major issues like the owner of a large project running out of money. While legal remedies can eventually help you recover your losses in an event such as this, they can take a long time – and if you can’t cover payroll while you find new clients, you could lose the business you worked so hard to get off the ground.

Limiting your upfront costs when starting a construction business or expanding to take on more and larger projects is key to keeping more of your initial funding and your subsequent earnings in reserve. Look at all of your initial expenses and investigate ways to mitigate them or spread them out. Financing your construction and heavy equipment through a provider like TimePayment is a great example; doing so helps you get the equipment you need to start your company or take on a marquee project while letting you pay for it over time in manageable installments. With a greater percentage of your early payments available for preservation, your business can quickly build up a cash safety net, letting you plan for your future with the comfort of knowing that temporary setbacks won’t bring your company to a permanent end.

To learn more about leasing your construction tools and heavy equipment, the financial products available to you, and how you can keep more capital in reserve, contact a representative of TimePayment today.

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