In all types of businesses, cash flow is a serious topic. Building service contractors have to deal, constantly, with accounts payable and receivable, slow pays, no pays and so on. But, so do customers, and they might have a different perspective.

Lance Ford, CPA, is the chief financial officer for Cavalier Services Inc., in Fairfax, Va. But before that, he was on the other side of the invoice, as vice president of a property management company. Here, he lets Contracting Profits readers in on some of the things going through a customer’s head when they think about money.

Billing early is billing timely
BSCs have a tendency to bill only after service has begun satisfactorily, leaving them with a month-long lag between starting a job and getting paid (during which, of course, they need to cover payroll and other expenses). They may be reluctant to bill at the beginning, but Ford says property firms don’t mind.

“The property manager or person responsible for the building usually has meetings monthly, or more often, with the building’s ownership,” says Ford. “They report on all variances.”

A variance arises if the actual amount spent doesn’t match the budget. If BSC bills aren’t processed in time, occasionally they may show up as a “zero” in the line item, whereas the budget included an outlay.

However, if the contractor sends the bill at the beginning of the month, before the service has started, in most cases, the accounts-payable department will gladly pay the bill, balancing the ledger and therefore, making the property manager’s job easier.


Most slow pays are not the customer’s fault
“Of the customers we have, 95 percent of the slow payments are because they haven’t received the invoice,” Ford says. “It’s not that they have a cash-flow problem. The invoice is just given to the wrong person, or there’s been turnover at the property-management company.”

In most cases, Ford assumes a slow payment is Cavalier’s mistake, and will call and make sure the customer received the invoice.

“It’s just a question of good people skills,” Ford says.

To many customers, price isn’t everything — relationships are
“When we got to the top two or so in the selection process, we just wanted to know if they could do the job,” Ford says, “Price is a reality check. Are you in the ballpark? If you’re within a reasonable range, being the highest bid isn’t a problem if you can get the job done.”

If a bid comes in significantly higher or lower than expected, Ford would check to determine if there was something about the specifications that accounted for the difference — for instance, if a proposal included a day porter or a different frequency.

Some property managers may have low-price motives

“Depending on how leases are structured, property managers may be looking to keep prices low. Sometimes, there’s an expense stop — the lease will read, for example, ‘Landlord will pay up to four dollars per square foot for operating expenses; above that, tenant pays on a pro-rata basis,’” Ford explains.

Another method is a “base-year” accounting — the first year of a lease will be a base year; in future years, the property-management firm will cover those expenses, but anything above that is the tenant’s responsibility.

Naturally, in a base year, a third party fee manager would have an incentive to keep costs down, which may affect how well-received your high bid or request for a price increase is received.

Offering a multi-year agreement, perhaps with room for future increases, for instance, can help assuage the manager’s concerns about a high base year. Knowing about the lease structure can help BSCs better understand their customer needs.




POSTED ON: 3/1/2003