.svg)
Credit
What is Credit?
Credit in the construction industry refers to the financial trust extended to a company or contractor, enabling them to procure goods or services with the understanding that they will pay for these in the future, typically with added interest. Credit is instrumental in this industry, as it often involves huge capital investments upfront, long before the revenue from the completed project is realized. A company's creditworthiness or ability to repay, is a determining factor in receiving credit. Construction companies frequently use lines of credit for purchasing equipment, hiring labor, buying supplies, and meeting emergency expenses. Moreover, credit facilitates smooth cash flow, allowing construction projects to progress without financial hiccups.
Trusted by trade contractors across the country
Other construction terms
What are Liquidated Damages?
Liquidated damages in the construction industry are a pre-agreed sum specified in a construction contract, which the contractor will pay to the client in the event of a breach of contract, typically when there are delays in completion. This contract clause serves as a protection mechanism for the client, giving an estimate of the potential loss they might incur due to the delay. However, liquidated damages must be a genuine pre-estimate of loss, not a penalty. They are not intended to be a punishment, but a compensation for the client's actual anticipated loss. This approach mitigates the risks and provides predictability for both parties in a construction project. One party cannot claim more than the contracted liquidated damages. They bring certainty to the potentially complex process of calculating actual damages in construction delays, thus fostering an efficient dispute resolution.
What is Overhead Allocation?
Overhead Allocation in the construction industry refers to the process of distributing indirect costs or overheads related to a project, amongst the various direct cost items within the project. This process allows all associated project costs to be accurately reflected, providing a holistic understanding of a project's total expenses. Overhead costs could include equipment rents, electricity, insurance costs, etc. The allocation can be based on certain criteria like the rate of resource consumption. It's a fundamental aspect of financial management, allowing the accurate pricing of projects, assisting in budgeting, and providing key insights that can guide decision-making.
What are Current Liabilities?
Current Liabilities are financial obligations or debts that a construction company has to settle within a short-term period, typically within a year. These usually include suppliers' payments for building materials, salaries and wages for construction workers, short-term loans for immediate project needs, interest payments on construction loans and taxes. These might also consist of project-related accrued expenses, or money that the company owes but has not been billed for yet, such as utilities. It's critical for businesses running construction projects to properly manage their Current Liabilities to ensure financial stability and the smooth completion of projects. The ability to meet these short-term financial obligations is a key indicator of the financial health of a construction company.
Ready to end the fire drill and get paid faster?
