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Innovation begins with ideas

Welcome to Ideas, a collaborative space for architects, engineers, and environmental consultants to discuss emerging trends and issues affecting the industry. Discover new ideas from industry experts, professionals, and enthusiasts, and share your own.

Post-Event Coverage: European AEC Industry COVID-19 Response Forum


BST Global’s Javier Baldor Speaks Alongside Leading AEC Industry CEOs Across Europe About COVID-19 Challenges & Strategic Solutions
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AEC Advisors Cash Flow on May 1 Post-Event Coverage

BST Global’s Javier Baldor Speaks Alongside Other AEC Industry Leaders About Cash Flow Challenges & Solutions Admit the Pandemic We are all living in unprecedented times now in light of COVID-19, and successfully managing your AEC firm’s cash flow is paramount to making it safely to shore. BST Global’s Executive Vice President Javier Baldor joined a panel of AEC industry powerhouses — including Scott Stewart from IBI Group, Jon Kessler from Gannett Fleming and Cindy Milrany from Freese and Nichols — to discuss these unique challenges and offer tangible solutions on how to mitigate. The webinar forum — Cash Flow in a Time of Crisis — covered a wide range of topics within the cash flow sector. Here’s an overview of some of the highlights.   Cash Balances: How much cash should you have on hand to safely make it through the crisis? Roughly 30–60 days of operating costs, while it also depends on the philosophy of your business. Javier shared that BST Global went through an exercise in the past of determining how long the business could sustain if no revenue was coming in: “You have to aggressively save to survive a crisis of any kind.” Reducing Working Capital: What strategies are you using to bill more frequently, collect receivables faster and extend payables? Billing suggestions included billing weekly vs. biweekly; reviewing reasons for holding building more in-depth; using RPA for automated reminders; keenly focusing on meeting milestone payments; optimizing billing processes like the pre-bill review process, invoice-generation process, collection process, etc.; and more. “There’s a lot of blocking and tackling,” Javier said. Faster collection tips included leadership involvement; direct dialog with clients; moving collections responsibilities from Project Managers to Accounting, allowing more choices in acceptable payment types; moving to digital, reducing WIP, and more. “Don’t communicate by email,” Javier explained. “Call them and talk to them. People will remember how you treated them and care for them during hard times.” Extending-payables ideas included upcoming lease negotiations and bonus delays for leadership but the panel agreed that it’s important to keep vendor relationships positive. Cutting Costs: What ways are you looking to reduce costs to positively impact your cash flow? Adjusting staff hours, temporary and/or permanent furloughs, reviewing benefit plans for potential savings, looking at technology investments to save costs elsewhere within the business, building space reductions, reduction in company travel, increased focused on resource management and more were offered. “The overall approach to meetings is going to change completely,” Javier shared. “Meeting our clients digital with video conferencing is now wildly accepted.” Silver Linings: What has this crisis taught you and what will you keep in practice after the pandemic? Overall, the panelists agreed that hard times can show you opportunities to get better. BST Global partnered with AEC Advisors to host this webinar, and AEC Advisors’ President Andrej Avelini also served as the event’s moderator. View the Full Recording

BST8 and BST10 During COVID-19

BST8 & BST10 Allows for Employee Rate Changes Needed During COVID-19 The coronavirus disease (COVID-19) has brought many challenges to us as a society — and seemingly overnight, it has changed the way many of us run and execute our businesses. While our governments around the world are seeking ways to mitigate the impacts that employees may experience due to the virus, we know those changes may also impact your current procedures and process workflows. Let’s use the Families First Coronavirus Response Act (FFCRA) as an example. In the United States, the FFCRA requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. FFCRA calls out the following three provisions: Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay when the employee is quarantined. This is limited to $511 per day. Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s rate of pay when the employee is caring for someone subject to quarantine or caring for a child whose school or childcare provider is closed. This is limited to $511 per day. Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay if the employee is unable to work due to a need to care for a child whose school or childcare provider is closed. This is limited to $200 per day. These provisions imply that the rate an employee is paid can change. Because of this, the hours need to be tracked to ensure the employee gets paid at the correct rate and that hours are costed appropriately in your financial system. Don’t worry — in both our BST8 and BST10 ERP solutions, there are features to adjust and track employee rates. For BST8 and BST10 users, you can create and assign specialized hours types to use in the system to solve this challenge. Each hours type can store its own cost rate that can match or be different from the employee’s standard cost rate. Once the hours types are created, you can configure accounts for the company, customize employee rates, map the hours types to payroll earnings, update projects and use the new hours types in timesheets. For more detailed information on how to create and assign specialized hours types within the systems, please email support@BSTGlobal.com for more information. Again, BST Global is here for you, now and always, so please don’t hesitant to reach out for anything during this time. Disclaimer: This post does not provide guidance on the provisions of the FFCRA. Please refer to the FFCRA and your company’s counsel to fully understand how the act’s stipulations may apply to your company and its employees.

4 Ways to Advance Your Billing Process

Gary Dwyer
GaryDwyer
Product Director
BST Global
One of the most critical processes for any successful business is billing. To advance your own AEC firm’s billing processes, it’s important to understand four key ways that can help. The Billing Process Getting your billing to run efficiently, is an important step in optimizing your firm’s cash collection. But if you have a poor billing process that takes too long to get invoices out the door, that makes it difficult to collect the cash you need, when you need it. While it’s very possible for you to fix your firm’s billing issues, you can’t think of it as a one-and-done process. It takes time, and some trial and error, before you can get it right. By setting the expectation that billing cannot be fixed overnight and that it requires constant effort from all persons involved, you’ll make the chances of fundamentally improving this process much higher. How to Improve Your Billing Process There are four key elements you must pay attention to when working on your firm’s billing process. Let’s investigate each. Know the terms of the project: The more clearly defined your invoicing terms are in the contract with your client, the less likely you’ll be to have misunderstandings. And by “invoicing terms,” I not only mean how long your client has to pay the invoice, but also the layout and the content of the invoice. What goes into an invoice and what it looks like may be different for each project. But, by introducing standards to limit the number of varying invoice formats, it makes it easier to ensure your team is using the correct format from project to project. Schedule frequent billing reviews: Project billing reviews should be scheduled throughout every month. Because too many AEC firms still consider it a monthly event, this causes bottlenecks when trying to do a billing review of all projects in a compressed timeframe. Instead of doing it all at once, try spreading it across the month and doing a few projects each week.For example, say you have 100 projects going on at once, you can review 25 a week instead of 100 at the end of the month. And even if you’re not billing your client each month, it’s still a good idea to review the charges you’ve billed on a regular basis to make sure they’re allocated to the right project and the right task. Monitor the billing process: Project Managers, Project Directors, and Project Accountants are usually involved in the review process of the draft invoice or prebill. Because several individuals need to be involved, this can make it easy to lose sight of when each person is working on the bill.Ask yourself this: your Project Manager is done with their review – do you know if the bill moved to the Project Director, or is it back with the Billing department? If you don’t have the answer, then you should consider finding an ERP solution that allows your team to have a clear view of this process. Being able to see what stage the billing process is at helps alleviate confusion and eliminate the extra time it takes to track down prebills. Store documents electronically: Project billing typically requires copies of reports and receipts as backup for charges on an invoice. The problem is, many AEC firms still use paper-based backup systems. This involves a manual effort to find backup documents in filing cabinets, making photocopies of those documents, and then combining the copies.Instead, all documents should be stored electronically in a document management system. That way you can find them faster and you can combine them into a single PDF to send to a client with the final bill. The Impact Now you know the four ways you can improve your billing process – but what does all of this really mean for your firm? Well, it means you can expect a positive impact in two key areas: Work in Progress (WIP): As WIP represents what has not yet been billed for a project, billing on a regular basis helps reduce the amount of WIP your firm shows on its books. This makes the reverse true as well – inconsistent billing causes your WIP value to increase.Not billing regularly can also lead to your profit or loss taking a hit when needing to write off outstanding WIP that can no longer be billed. Essentially, if you’re billing a client too long after the work for that bill was completed, it’s possible the client may deny that charge. But if you bill on a regular basis, you can avoid this potentially uncomfortable back and forth with clients altogether. Days Sales Outstanding (DSO): One of the most important KPIs used to benchmark cash collection is DSO, and the part of billing that impacts DSO is your invoices. If your invoices are accurate and complete, then it makes the process of a client’s approval for payment much quicker and easier. Faster approvals lead to getting paid sooner, which decreases your outstanding receivables, and positively impacts DSO by reducing it. Conclusion While improvements in your billing process can help lower your firm’s WIP account balance and reduce DSO, it can also lead to a better relationship with your clients. When your client’s Accounting department can rely on the accuracy and timeliness of your billing practices – that’s going to make one happy client. Don’t underestimate how much of a factor that will play in their decision for awarding future project work. The impact on client satisfaction alone should be a good enough reason to improve your firm’s billing processes. Interested in learning more about the billing process? Check out The Ultimate ERP Glossary for AEC Firms, which includes 150 terms that will help you learn not just about billing, but about the entire project lifecycle. Download your free copy by clicking below! DOWNLOAD GLOSSARY NOW

Invoicing 101: How to Improve Your Invoice Process

Gary Dwyer
GaryDwyer
Product Director
BST Global
The foundation of a successful billing process? Your invoices. Learning how to improve your invoices? Simple. The Invoice Problem Invoicing has the potential to make or break your AEC firm’s billing process. Why? Because if your invoices aren’t right, it means more work. More work going back and forth with your client to resolve a late payment, and more work for your Accounting team to correct inaccuracies and issue credits to clients. Not to mention, the client can lose confidence in your billing practices. Essentially, you can’t improve your billing process without making sure your invoicing is under control first. In this post, I will go through the fundamentals of invoicing and how you can focus on these areas to get your invoicing in check. The Fundamentals of Successful Invoicing Successful invoicing has two fundamental elements: accuracy and timeliness. Getting these two elements right, will set the foundation for your firm’s billing process. Now, let’s examine each of them. Accuracy Whether it’s the layout, or how you need to arrive at charges based on the contract type used for a project – the accuracy of your invoices needs to be exact.   Layout Each contract type used in the AEC industry, along with a client’s requirements, dictates the way information must be presented in an invoice. For instance, a contract may require you to show values for the project fee, billed to date, amount being billed, and fee remaining. How that information is summarized can also vary. The contract may require invoice values to be grouped based on phases or based on specific tasks of your project. To avoid complications down the line when billing, make sure your contract is clear when it comes to the specifics of how invoices need to be formatted.   Values In addition to the layout of an invoice, contract types also influence how to arrive at the invoice value and when you’re allowed to send that invoice to your client. Here’s an example: A Fixed Fee contract only allows billing when a certain amount of progress is made on a project, whereas with a Time and Material contract, you may be expected to bill your client on a monthly basis. For calculating the detailed charges on an invoice, a Time and Material contract’s charges are based on a pricing schedule or a markup, while a Fixed Fee contract’s charges are based on the percent complete of a project. The bottom line is that an invoice must be fundamentally accurate and complete. Whether it’s the amount charged for an employee, properly summing up detailed charges so they equal the invoice value, or including the appropriate tax on an invoice – you need to get all these values right, every time. Timeliness The faster you get invoices out the door, the sooner you can collect money from clients and use that cash for your business. So, the biggest thing you can do to improve the timeliness of your invoices is to make sure charges are posted to projects on a regular basis. For instance, how often have your employees not submitted their expense reports on time? If this happens, and you wait too long after a project is complete to bill the client for those expenses, they may question or even reject those charges on the invoice. Think of it this way: the closer you bill to the project’s timeframe, the smoother your client’s approval will go, and the sooner you’ll get paid for completed work. Conclusion Getting your invoicing practices right is synonymous with improving your billing process. Otherwise, when your invoices are inaccurate, or the layout doesn’t meet the contract specifications, it leads to conversations with clients to fix those issues. And if these conversations happen on an ongoing basis, you can expect clients to lose faith in the quality of your invoices. This can cause further delays in payment as clients may now further validate, or question charges every time you send an invoice. So first, get the layout and the values right on your invoices (make sure the project is setup according to the terms of the contract with your client). Then, once you have those right, make sure to review charges and bill your client on a regular basis. Now, with these changes, your firm will have the foundation it needs to start focusing on how it can take its billing process to the next level. Interested in learning more about invoicing and billing? Check out The Ultimate ERP Glossary for AEC Firms that’s packed with 150 common industry terms spanning the entire project lifecycle. Download your free copy by clicking below! DOWNLOAD GLOSSARY NOW

DSO and DPO – What’s the Difference?

Gary Dwyer
GaryDwyer
Product Director
BST Global
Analyzing Days Sales Outstanding (DSO) and Days Payable Outstanding (DPO) can improve one very important financial metric for your AEC firm: cashflow. What It Is Before I get into how to calculate DSO and DPO, and how the resulting value of each impacts your firm’s cashflow, let’s do a quick refresher on their definitions: Days Sales Outstanding shows how well your firm is managing its accounts receivable by measuring how long it takes to collect payments owed to your firm. Days Payable Outstanding shows how well your firm is managing its accounts payable by measuring the average number of days it takes you to pay vendors. In short, DSO helps your firm see how long it’s taking to collect outstanding payments, and DPO helps your firm see how long it’s taking to pay outstanding bills. And while they address different areas, the information derived from each are equally as important. Now that you’re caught up on what DSO and DPO means, let’s look at the formula for each. How to Calculate DSO Credit SalesA purchase made that does not require the payment to be made in full at the time of purchase. The full amount can be paid at some point in the future or smaller regular payments can be made over a period of time. DSO is calculated by dividing your accounts receivable during a particular time period by the value of your credit sales during that same time period, and then multiplying the result by the number of days in the period. Here’s a quick example: Receivables: $2,000,000 Credit Sales: $2,800,000 Days in Period: 91 days DSO Calculation: ($2,000,000 / $2,800,000) x 91 days = 65 days Your firm should be aiming to have as low of a DSO value as possible because it indicates that you’re doing an excellent job of collecting outstanding debts. A range between the lower 50’s to upper 80’s is a typical value for most AEC firms. But once values start creeping over the upper 80’s, this should be a clear red flag to your firm. How to Calculate DPO DPO is calculated by dividing your average accounts payable by your daily cost of sales (also sometimes referred to as cost of goods sold or COGS). For example: Payables: $250,000 Cost of Sales: $1,250,000 DPO Calculation: $250,000 / ($1,250,000 / 365 days) = 73 days Unlike DSO, you want your DPO value to be higher because it means you can keep cash within your firm for longer. In this case, a range from the mid 60’s to more than 100 would be typical for most AEC firms. DSO and DPO Target Values But having a low DSO value, or a high DPO value, doesn’t give you the whole story. The target values for any firm are influenced by several factors, such as: what industry your firm is in, the type of projects your firm works on, whether that work is public or private, whether your firm is working as a general contractor or a sub-contractor, etc. So, what may be a target value for one architecture, engineering, or environmental consulting (AEC) firm, may be different for another. For example, if your firm does more private than public work, then the DSO target may be higher as you have room to negotiate more favorable progress payments (e.g. get advance payments), which helps reduce your firm’s DSO. But as you calculate your firm’s DSO and DPO values, keep in mind that while a single value is an important indicator to start paying closer attention, the benefit really comes from tracking these values over time. These values cannot be changed overnight – there are processes that need to be put in place and tested in order to see those values start to come down or go up. Depending on which direction the trend moves, it will have a positive or a negative impact on your firm’s available working capital – which is why these calculations are so important to understand. More on this in the next section. Why It’s Important Monitoring the trend of DSO and DPO values provides an insight into how your AEC firm manages its cash. Let’s see just how a positive or negative trend can have an impact. First off, an increase in your firm’s DSO means you’re financing clients by carrying their debt on your books – this results in a negative impact on your firm’s cash flow since it’s taking longer to collect those payments. Pay When PaidA contractual clause that stipulates that a contractor is obligated to pay its subcontractors upon receipt of payment from the owner. The same impact on your firm’s cash flow happens if your DPO is declining – meaning, cash may be going out sooner than it needs to be. This can be improved by making sure your firm negotiates more favorable payment terms with vendors and pays vendors according to those terms (not paying them earlier than what’s in the agreement), or it can even adopt a Pay When Paid strategy with vendors. Conversely, a reduction in your firm’s DSO, and an increase in DPO, will lead to improved cash flow for your business. As your firm starts collecting payments more quickly and takes longer to make payments (within reason, of course – you don’t want to ruin the relationship with your vendors!), the amount of cash coming in will exceed the amount going out. Even the smallest improvements in these factors can have an impact on the amount of working capital your firm has at a given time – so don’t take these lightly, make them a priority. Conclusion DSO and DPO are useful formulas for analyzing your firm’s processes (i.e. billing, collections, and payment processes) and can play a direct role in the effectiveness of your cash cycle. Given the significant role cash plays in successfully running a business, monitoring your DSO and DPO values can help your firm find ways to collect on outstanding bills as quickly as possible, while also watching outflows of cash for vendor payments. Want to learn other helpful calculations to keep your firm’s finances in check? Check out The Ultimate ERP Glossary for AEC Firms, where you’ll learn 150 terms (along with a whole range of AEC related formulas) that cover the entire project lifecycle. Download your free copy by clicking below! DOWNLOAD GLOSSARY NOW

Cash vs. Accrual vs. Work in Progress Accounting: Which is Best for AEC Firms?

Evelyn March
EvelynMarch
Group Director
BST Global
Cash basis and accrual basis are two different methods of accounting. Each method tells a different story about revenue, but neither method gives the whole story – that's where the work in progress (WIP) method comes in. It’s an important question: which accounting method is most effective at providing insight into your firm’s revenue? Some say accrual basis accounting is more effective than cash basis accounting. But many times, if architecture, engineering, and environmental consulting (AEC) firms only leverage accrual basis accounting, they miss out on an even deeper level of insight of revenue that can only be achieved with the accrual based WIP method. While each method provides a snapshot of your AEC firm’s income, the WIP method provides the most accurate representation. The impact of this? Your team is able to get a clearer picture of your firm’s revenue journey. Before we dive into how WIP gives the level of revenue insight your AEC firms needs to be successful, let’s review the more commonly used cash and accrual basis accounting methods first. Cash Basis Accounting The end goal of any profitable business is to monitor cash flow. That’s why for the cash basis method of accounting, income is booked when money is received, and expenses are booked when money is paid. In other words, items are booked when money changes hands. While this makes the value of your firm’s revenue extremely accurate, it can also paint a misleading picture. If a large sum of revenue is received and recorded before bills are paid, your firm may falsely appear more profitable, as assets will be greater than liabilities. Of course, the reverse is also true. If a firm pays for expenses prior to receiving the money and recording this revenue, it can make a company look like it’s headed in the wrong direction. In this case, your balance sheet would show the value of your firm’s liabilities as greater than the value of its assets. Accrual Basis Accounting While cash basis accounting records the actual movement of cash, accrual basis allows for the prediction of revenue. With this method, if an invoice is received for completed services (expenses), or a bill is submitted to a customer (revenue), both are booked at that point to predict future revenue and expenses. So, while items are booked when money changes hands with cash basis, items are booked when an invoice passes hands with accrual basis. This prediction allows you to see the cash flow that’s already in motion once an invoice is sent – but what if you could predict revenue even before invoices are sent to the client? That would be the holy grail of data analysis. And yes, it’s possible… if your enterprise resource planning (ERP) software can calculate WIP. Work in Progress What is WIP? Accrual-based WIP is the value of work completed, but not yet billed. Since there are parameters that determine the contractual amount that you can bill, what if you used those parameters to figure out the value of work before you billed it? This additional layer of accrual allows you to book the revenue that comes from work completed in the month it occurred. By booking revenue at this point in time, it provides the truest picture of your firm’s forecasted income. Let’s explore this concept a little further. Since the accrual method means you book expenses when your firm receives an invoice or timesheet, you have a clear picture of your cost for a given month. No matter which accrual method you choose (accrual basis or accrual-based WIP), your expenses will always be booked in the month it occurred – this will not change. But with WIP, you have an additional option for booking revenue: your AEC firm can now book revenue in the month work was completed. We know it takes money to make money, so booking your revenue in the same month that you booked your expenses gives the truest picture of your firm’s financial standing. But by taking it a step further with the WIP method, the WIP value on your financial reports will show the value of work before you bill it in the future. So, how is this added benefit helpful to your AEC firm? We’ll take a look at that next. The Revenue Story with WIP In a scenario where WIP is not used, and expenses are booked in a given month yet billed months later, your picture of expenses versus revenue is skewed. The month of the expenses would appear with no offset of revenue, and when the invoice is sent, the revenue would appear with no offset of expenses. Because these values were booked in two separate time periods, it would be challenging to make the connection of how much expense it took to earn the amount invoiced. On the other hand, if the WIP method were used, you would accurately depict the revenue earned in the same month the expenses were booked. Seeing that this value was booked as WIP, it alerts you that this is your future billing amount. Are you starting to see the extra layer of analysis your firm would receive? Because WIP is a statement of what you expect to bill in the future, when an invoice is sent, that value is offset from the WIP account. By booking that value in WIP, you are now able to evaluate how long it took from completing the work to billing it. That same principle applies when cash is received. Noting the date of the invoice, and the date that cash was received, it shows how long it took for a client to make a payment. Thus, WIP gives you a complete timeline from work completed to billing, and then from billing to cash collected. Here’s another way to look at it: Say your team completed work in January. According to the WIP method, you would book that work in January. Then, if you were to review your firm’s WIP balance (reminder: this is work you’ve completed, but are waiting to bill) in March and saw there was a balance for WIP that was booked in January, this would immediately alert you that the work completed in January had not been invoiced yet as of March. Your firm can now proactively review WIP and give attention to projects that have fallen behind in invoicing, thus, having a positive impact on your firm’s cash flow. Conclusion While your AEC firm can choose to use any of the three accounting methods, it’s important to understand the added benefit of WIP in its ability to enable your firm to proactively analyze and maximize its profits. By incorporating WIP into your accounting practices, it opens communication between your Finance and Project Management team to discuss the time lapse between work completed and work billed. Opening this dialogue allows the project team to join in the ownership of a healthy cash flow and also aids in the dialogue with your clients as you manage the time from billing to payment. Want to learn other important AEC industry terms? We’ve created a glossary packed with 150 terms that covers the entire project lifecycle, all in the context of an ERP solution. Get your own free copy of The Ultimate ERP Glossary for AEC Firms by using the link below! DOWNLOAD GLOSSARY NOW

The Importance of Working Capital for Your AEC Firm

Gary Dwyer
GaryDwyer
Product Director
BST Global
Properly managing your working capital is necessary to ensure your architecture, engineering, and environmental consulting (AEC) firm is able to cover current obligations, improve operational efficiency, and invest in the future growth of your business. What It Is At a high level, working capital is an important financial metric that helps AEC firms assess their short-term financial health. More specifically, it’s how much cash and cash equivalents are available to cover short-term obligations (e.g. salaries, accounts payable, short-term loans, lease payments, etc.). How to Calculate It While there are many different ways to calculate working capital, there are simple calculations you can leverage to demonstrate the current financial state of your firm. Let’s take a look at three common formulas you can use. The basic net working capital formula looks like this: Working Capital = Current Assets – Current Liabilities Another way to measure working capital is by expressing it via the Current Ratio. Current Ratio = Currents Assets Current Liabilities Then there is the Acid Test Ratio, which is similar to the Current Ratio, but excludes certain types of current assets. Acid Test Ratio = (Cash + Cash Equivalents + Short Term Investments + Current Receivables) Current Liabilities To compare, while the Current Ratio includes all Current Assets, the Acid Test only includes cash, cash equivalents, short-term marketable securities, and accounts receivable. Meaning it excludes inventory, prepaid expenses, and deferred income tax. Now that you know how to calculate these simple formulas, let me explain how to analyze the results for each. If you have a negative working capital value (meaning current liabilities exceed current assets), or the Current Ratio has a result below 1.0, this is usually an indication that your firm may not be able to meet its short-term obligations. So, the higher the ratio, the better positioned your company is to meet those obligations. However, if the result is too high, this also means your firm is not efficiently managing its short-term finances (more on this in the next section). While the ideal value of these ratios can vary by industry, typically the result for the Current Ratio should be above 1.2 and the Acid Test Ratio result should be above 1.0. Why It's Important Besides working capital being a representation of liquidity, why is this measurement so important for the success of your AEC firm? Think of a scenario where your firm is already having a difficult time covering its current liabilities – and then, out of nowhere, your firm has an unexpected major project expense or an overrun. How will your firm cover either of these without the necessary cash reserves? Now we’re talking about a recipe for disaster. To top it off, if your firm is consistently unable to properly manage current obligations, it can lead not only to issues in the short-term, but it can also potentially lead to something far more severe: bankruptcy. Now, let’s go back to how you don’t want your firm’s working capital ratio results to be too high for a moment: the reason for this is, it may indicate that your surplus cash reserves are not being used to maximize return for your shareholders. Here’s what I mean: by having too much working capital, it still means your firm isn’t putting its cash to good use. Putting excess cash “to good use” is done by investing those funds in places that will help the company grow. For example, instead of sitting on a large cash reserve, a better option could be to make a large capital purchase that gives your firm the opportunity to expand in the current market, or even a new market. So, whether it’s too much, or too little, your firm should constantly be finding ways to keep working capital at a healthy level. Here are some questions to consider when evaluating your firm’s working capital: Cash: Is your firm investing excess cash reserves for future growth? Accounts Receivable: Can your firm reduce Days Sales Outstanding (DSO) by invoicing quicker or improving its collection process? Short-Term and Long-Term Debt: Is there an opportunity to improve your firm’s liquidity by replacing short-term debt with long-term debt? Trade Payables: Is your firm making the best use of the payment terms agreed with your vendors (e.g. not paying too soon, not paying too late)? Conclusion While there are entire books written on the concept of working capital and the different ways it can be analyzed, the calculations in this post provide a quick, simple method for your firm to evaluate its short-term financial health. When reviewing your company’s current financial state, the best method is to combine these simple liquidity ratios with more in-depth analyses. This gives a more complete picture of your firm’s ability to successfully finance short-term operations and maximize the management of its assets and liabilities. Curious about where you can find other topics to help you analyze the health of your AEC firm? Check out The Ultimate ERP Glossary for AEC Firms, where you’ll find 150 AEC industry terms spanning the entire project lifecycle: from project pursuit, to project delivery, to accounting, and more. Click the link below to download your free copy and learn other important ways to assess projects and keep your firm on track! DOWNLOAD GLOSSARY NOW

5 Reasons Why Your AEC Firm Should Be Using Electronic Fund Transfers

Gary Dwyer
GaryDwyer
Product Director
BST Global
Gone are the days of cash and paper checks – or at least they should be. Now, architecture, engineering, and environmental consulting (AEC) firms are making the smart switch to Electronic Fund Transfers (EFT) as part of the payment process. What It Is The definition of Electronic Fund Transfers (EFT) is pretty simple: it’s the electronic transfer of money from one bank account to another. And because cash or paper checks aren’t exchanged with EFT, when it’s used in the procure to pay process, it can be an efficient method to pay your vendors. Why It's Important Nowadays, more and more companies are using EFT, and in some countries, the paper check has even gone away completely. Here are a few reasons why AEC firms are switching over: Convenience: It’s more convenient to submit an EFT to your bank than it is to use checks. With checks, you have the extra steps of writing it out, getting it signed, and then mailing it to your vendor. Less Wasted Time: An added benefit of eliminating these extra manual steps is it frees up employees from doing routine paperwork and allows them to concentrate on other aspects of their job. More Secure: Because EFTs are completed electronically, it not only means they’re quicker and more convenient than cash and paper checks, but it also makes them more secure. By taking people and paper out of the process, it reduces the risk of error, or even fraud. Meet Vendor Preferences: Vendors typically prefer money to be put directly into their account – which is exactly what an EFT does: it puts the money right into their bank, so they get their payment sooner. Less Bounced Payments: Paper checks can lead to bounced payments, since people can write checks all day long, without the money to back it up. EFT eliminates this issue as there must be money in the account in order for a payment to go through. When setting up EFT, it’s important to consider that your bank will specify the format in which EFT payments are submitted. The standards used for these file formats will vary by region or country and in some cases, your bank may apply its own requirements. For example, the NACHA (National Automated Clearing House Association) format is common in the United States, while in Europe, the SEPA (Single Euro Payments Area) format is widely used. But even with these broadly used standards, there are other variations that can apply. So, the best thing to do is consult with your banking institution to find out what those distinctions are before implementing EFT. Conclusion Feel like you’re ready to make the switch? Make sure you speak to your bank first to establish the format and method for implementing EFT. Then, reach out to your enterprise resource planning (ERP) software vendor to determine the best way for your firm to transition into using EFT for its payment process. And if you want to learn other useful definitions like this, check out The Ultimate ERP Glossary for AEC Firms. This glossary covers 150 of the most commonly used terms in the AEC industry – including EFT – all in the context of an ERP solution. Covering the entire project lifecycle, you’ll learn about other important facets of the procure to pay process such as: purchase orders, vouchers, and much more. Click below to receive your free copy! DOWNLOAD GLOSSARY NOW

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