II. Monitoring the Budget Implementation - Cash Flow Status Report
Managing the cash flow control of a construction project requires the monitoring of cash collections and utilization, which can be gleaned from the cash flow status report. There are no hard rules on how this report is presented but the main objective is to determine the current cash position of the project funds. Hence this should be the baseline figure.
Click on the screenshot image on your left to view a larger image of a sample cash flow status report.
The Total Costs
Costs incurred and estimated are presented into two sections: the Direct Costs and the Indirect Costs. View the sample where the actual costs are compared against the estimate for the said activity; hence the percentage of completion is computed by dividing the total actual charges over the total estimate ($898,246 / $1,324,453), which is 68%.
The project manager has to consider the company’s administrative and other overhead costs for determining the costs related to the completed portion of the construction project. Hence, the total cash output to date is $1,164,381.
Glean from this section the amount of the contract price and how much has been billed to the building owner. The construction company has integrated its 5% retention profit in the amount of the contract price. Take note that sixty-nine percent (69%) has been billed to the client, for which the amount of the expected profit to be realized at this stage should be $86,500. That applies if the client actually pays the billed amount.
Not all charges will be reported as actual cash outlay, since some may still be unpaid as of report date. You can find out why by taking a look at the amount of receivables.
Understand the title “Net Bill” is different from the concept of “Gross Bill”. Although the client has been billed, it is possible that payment is still being processed or a certain portion was intentionally retained by the owner.
In this sample, the owner was already billed the amount of $1,200,000 representing sixty-nine percent (69%) of the costs to cover for sixty-eight percent (68%) job completion. However, the construction company actually received $800,000 only. Instead of retaining a profit of $60,000 ($1,200,000 x 5%), the company stands to gain only $40,000 ($800,000 x 5%) as of report date. .
However, for some reason, the owner decided to reduce the payment by $250,000; hence the construction company is bound to receive only $950,000. This means that the company’s total exposure of $1,164,381 is not yet paid in full by the owner. Hence, some of the accounts payable ($174,657) remain unpaid as of the cash flow date, while the construction company’s profits as of the report date have not yet been realized.
The cash flow report shows that the billing amount and percentage of completed project do not stray far from each other; but the cash position of the company is affected by the slow payment of the client-owner.
Cash Flow Control in Construction Projects concludes on page 4.