Oregon Construction Contractors (CCB) Practice Test

How do prompt billing and collections affect cash flow?

1. They hinder cash flow

2. They have no effect

3. They improve cash flow

4. Only if payments are received early

The correct answer is: They improve cash flow

Prompt billing and collections are critical components of effective cash flow management in the construction industry. When a contractor issues invoices in a timely manner and ensures that collections are pursued actively, it leads to faster payments from clients. This accelerates the inflow of cash, which can then be reinvested into ongoing projects, used for payroll, or directed towards other operational expenses. Improving cash flow through timely billing and collections means that there is less chance of cash shortages that can occur when payments are delayed or when invoices are sent out late. By maintaining a regular and disciplined billing cycle, contractors can predict their financial position more accurately and plan their operations accordingly. This proactive approach allows businesses to maintain liquidity, meet financial obligations, and seize new project opportunities without the stress of cash flow issues. In contrast, hindering cash flow or having no effect could lead to unstable financial conditions where the contractor might struggle to cover expenses or pay workers on time. Delayed payments, inadequate billing practices, or failing to follow up on overdue accounts can create significant gaps in cash flow and disrupt business operations. Therefore, prompt billing and collections unequivocally contribute to the improvement of cash flow, fostering a healthier financial environment for contractors.