Exploring the cash flow management strategies of Turkish construction companies

Abstract

Despite many studies on cash flow management in construction literature, a very limited number of attempts exist focusing on strategies employed by contractors to increase the amount of cash in their hands in the early phases of the project and to improve their cash balance. Based on this gap, this study aims to identify and evaluate cash flow management practices of contractors in Turkey. In this context, a web-based questionnaire survey was conducted with construction company owners and managers involved in the decision process of cash flow management practices. Data obtained from a total of 96 participants show that construction companies commonly hold working capital equivalent to 10% to 20% of the contract sum in their hands at the beginning of the construction. Construction companies frequently recourse to cash flow management strategies to decrease external financing requirements and prevent possible cash shortages during construction. While trade credits followed by overbilling are the most preferred approaches, unbalanced bidding techniques are employed to a limited extent. Furthermore, a clear distinction has been identified between the strategies adopted by companies of different ages and sizes. Trade credits are the first option only for small and young companies and are most widely used by them. Also, the adoption of overbilling techniques increases as company size and age grows. Similarly, unbalanced bidding practices increase with years of experience in the industry. Construction productivity, quality of work, and completion risks come to the fore as common concerns with delaying payments to the suppliers and subcontractors. Also, unbalanced bidding practices are assumed very risky, and accurate estimations are of critical importance at this point.