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Cash Accounting
What is Cash Accounting?
Cash accounting is a financial accounting method often used within the construction industry. It is characterized by recognizing revenue and expenses only when cash is received or paid out. This means that transactions are only recorded when the business physically sees the money. For instance, if a construction company performs a job in June but doesn't receive payment until July, the income will be registered in July's financial statements, not in June's. This method works well for smaller construction businesses as it allows them to track cash flow accurately and in real-time. Furthermore, cash accounting in construction provides a straightforward representation of how much actual cash the business has at any given moment, allowing for better financial management and planning.
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Other construction terms
What is a Mechanic’s Lien?
A Mechanic's Lien is a legal tool used within the construction industry. This claim is used by contractors, subcontractors or suppliers who have not been paid for work or materials provided on a construction project. The lien is attached to the property where the work or supply was carried out, and can impact the ability to sell or refinance the property until the debt is settled. Essentially, it's a security interest in the title of the property for the benefit of those who have supplied labor or materials that improve the property. The nature and rules of a Mechanic's Lien can vary by jurisdiction, but the overall concept is to provide a form of protection to those in the construction industry that have fulfilled their contractual obligations but have not received their due payment.
What is Cash Flow?
Cash flow, as applied to the construction industry, refers to the net amount of money moving in and out of a construction business within a defined period of time. This includes income from clients, loan repayments, supplier payments, salaries, and overhead costs. Crucially, understanding cash flow is vital for a construction firm as it helps in making strategic decisions for sustainable growth. It can be used to assess the liquidity and overall financial health of a business. With an active construction project, cash flow can be unpredictable due to unexpected expenses, delayed payments, or cost overruns, requiring diligent cash flow management.
What is a draw request?
A draw request (or construction draw) is a formal demand for payment submitted by a contractor or subcontractor to a lender, project owner, or general contractor for work completed during a specific phase of a project.
Submitted periodically alongside a schedule of values, a draw request details completed labor, materials installed, and stored items. Once submitted, it typically triggers a bank draw inspection to verify on-site progress before funds are released, ensuring project financing directly aligns with actual work completed.
How Siteline Helps:
Siteline accelerates the entire draw request workflow. Trade contractors can quickly assemble accurate pay applications, compile required backup documentation, and collect lien waivers in one place so draw requests get approved and paid without administrative back-and-forth.
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