The Payment Schedule is the Key to Cashflow

By Davy Currie from CEDIA Member company, Infracore.

Cashflow is not just a real time thing and it’s not a one-way street either.  

Yes, it’s about money IN today and that’s the knee jerk reaction for most of us, if we’re being honest. But, as importantly, it’s about money OUT; tomorrow, next week, next month or next year.  

The fact is, you can’t take care of the OUT until you sort out the IN. Let’s take it as a given that we all understand the mechanics and importance of IN and OUT cashflow.  

How can integration businesses improve the money IN process and change the status quo? 

A key approach to consider is the ‘Payment Schedule’. This is your passport to healthy and consistent cashflow on a project.  

The payment schedule will inform the payment terms but the two are separate items.  

The main difference is that the payment terms are pretty much set in stone at the beginning of a project but the payment schedule is fluid and will track and reflect changes to the programme, the bill of materials or labour in real time.  

This is a document that you’ll mostly find forgotten at the back of a contract. My recommendation is bring it to the forefront and make it your best friend.   

The payment schedule is based on; the agreed total for the project, the programme of works and the component parts which make up the project in way of supply and labour. It’s basically a clear list of dates and values (with a brief description), the first line will be your deposit with the start date and the last line will be the forecast end date with final payment (less retention, if applicable).  

You should be billing once a month for a medium to large project, more frequently if a smaller project – it’s possible to negotiate better invoicing terms (don’t be scared to ask). The invoice should be made up of items you need to buy in line with the programme and labour you’ve supplied up to the date of the invoice or thereabouts.  

Supply items should be paid up front as far in advance as is required to satisfy the programme milestones. Normally, supply will fall into two categories; direct to site (e.g. cabling, in wall items, on wall items – the integral parts) and delivered to your premises (TV’s, rack equipment, consumer electronics – the parts not screwed down).  

Create a process to account for items bought, ensure the supply to site is catalogued and signed off (by a third party of authority) and provide a vesting certificate for the items you are receiving even if you’re not asked for this.  

Labour should be billed in line with progress as a proportion of the agreed total. The first revision of the payment schedule will show estimated figures derived from the programme. Payment one which is your deposit will stay true to the schedule, but your labour billing should be fluid.  

So, if ‘Payment 2’ is higher than it should be (i.e., you’ve not provided the amount of labour estimated) then adjust this and show it in your payment application and invoice for that month. The same thinking applies if ‘Payment 2’ is lower than it should be. These adjustments throughout the life of the project will be reconciled at completion.  

Be sure to value your progress honestly, and resist overbilling. That gives the client a reason not to pay. Your billing strategy is about giving the client every reason to pay.  

These are the fundamentals of a payment schedule. Track, evolve, and amend the payment schedule in real time. When changes and variations occur, these should be applied and factored in to the schedule straight away. Each time the schedule is amended it should be re-issued. As well as helping to avoid large ‘extras’ invoices amounts at the end of the project this can also help with the cashflow on the client side too; providing advanced notice on call off amounts.   

More documentation can be added. Instead of only submitting an invoice (informed by the payment schedule), you can add a detailed valuation document, a statement of account, produce an informative progress report, include supporting information like a record of delivery sign off’s and vesting certificates. If you do this even for small amounts, you will build confidence and give the client every reason to pay in full and swiftly.  

So, the next service level agreement you submit or contract you sign, make sure that the Payment Schedule is in there and you use it as a working document. This will absolutely improve your cashflow on the project. As an experienced Contract Administrator in the AV sector, I can guarantee it.