Invoicing an owner is as complex as higher-level math these days, as contracts are more convoluted and payout terms are frequently extended from 30 to 90 days and beyond. That puts the pinch on cash flow for industrial contractors in a big way.
Turner Industries’ accounting department in Baton Rouge has grown significantly in the last 10 years. While some of that is due to organic growth, much of it is necessary to manage the increasing difficulty of simply getting paid.
Turner CFO Jimmy Sylvester says it’s all part of a greater effort by many industry procurement departments to hold onto their cash. Gone are 30-day payment terms. Industrial owners are now pushing it to 120 days in some cases.
Several states have taken action to block the trend over the years. Texas, for example, passed a Prompt Pay Act in 2003 that requires owners to pay an invoice by the 35th day after receipt. Failure to do so is a violation of the act, unless there is a reasonable basis for dispute.
Unfortunately, no such legislation exists in Louisiana, and owners are pushing their payment terms into the stratosphere. This is the reality of the industrial world.
“It takes the contractor weeks to put a bill together, and then the customer typically performs a 30-day audit (of the invoice),” says Jay Montalbano, a partner at CPA firm Hannis T. Bourgeois in Baton Rouge and former president of the Construction Financial Management Association’s South Central Chapter. “And God forbid if there’s a discrepancy, because it’ll get kicked back.”
This disproportionately affects subcontractors, since general contractors often pass the longer terms down the line. “The subs can’t pass that on to their workforce,” Montalbano says. “Their workers still must be paid every Friday.”
Whether a small scaffolding job or a $200 million capital project, the trend is industrywide. And Sylvester, who is responsible for cash flow management at Turner, among other things, says it shows no sign of slowing down.