The Importance of Funds Control
Not every element of risk for a construction company is found in the field or in the workshop. In our years of experience, we have saved our clients a lot of money simply by teaching the importance of funds control, and by offering comprehensive accounting services. If you cannot keep track of your revenue, then you have no idea how much revenue you really have. Funds control is a form of risk management that clearly follows the paper trail for every dollar your company generates and makes sure that effective accounting methods are in place at all times.
Keeping Project Separated
Most construction companies do not understand the risks involved in having an understaffed accounting department. A significant part of funds control is constantly monitoring incoming receipts and operating costs to make sure that all of the funds are allocated to the correct project. The improper allocation of funds is one of the ways that construction companies lose money on every project they are working on.
Managing Funds Within Projects
Every project has its own set of accounting processes to monitor including:
- Pay requests sent to job owners
- Invoices from vendors
- Equipment rental
- Subcontractor payments
If your construction company does not have professional funds control in place, then it is very easy to lose track of where the money goes and doesn’t go as a project goes along. For companies that do not engage in funds control during a project, it can become extremely expensive to close out a project that has a lot of misappropriated funds.
What Does a Risk Management Company Do?
The role of a professional risk management company in funds control is to put processes in place that help to monitor the movement of cash, and take care of each individual accounting event. An invoice received from a vendor is considered an accounting event, and there can be thousands of accounting events attributed to each project.
In general when it comes to funds control, your risk management company will:
- Review each vendor invoice and request for payment that is sent to a job owner
- Develop a comprehensive way for maintaining all supporting documentation to pay requests and invoices
- Keep a running tab on the completion percentage for each job
- Put a comprehensive tracking system in place for change orders
- Collect, process, and track all lien waivers
- Track each subcontractor payment to make sure that the proper amount is paid to the right companies based on the pre-determined schedules
Your risk management professional will take on the responsibility lf making sure that all of the contract requirements regarding payment requests to owners are met, and that each subcontractor is treated according to their contracts as well. Every dollar that moves within a project, and within the entire company, is tracked and monitored to make sure that the construction company is meeting its financial obligations and not allowing any money go to waste.
Risk is any operational aspect of a construction company that could cost the company unnecessary losses if not properly managed. Funds control is a form of risk management that not only helps to keep companies from losing track of money, but it also ensures that a construction company meets its contractual obligations to its vendors, the job owner, and all subcontractors.