F R O M T H E F O U N D E R
The working capital problem
The AEC industry is facing unprecedented demand for what we do. If there was ever a time to say that slow-paying clients are not acceptable, it is now.
I was talking with my 10-year-old daughter’s friend’s father this weekend when he dropped her off for a play date. He is assuming more of an operations role in the architecture firm that he is employed by. Inevitably, our discussion turned into one on the topic of unbilled WIP and collection of accounts receivable. He mentioned that they have some clients that take as long as a year to pay their bills. At the same time, they are having difficulty staffing up to meet the demands of their clients.
My first thought was if his firm wasn’t as old and as large as it is, they could never afford to do that! The working capital problem is one that a lot of people in this business don’t understand. It’s a huge problem, and one that needs a lot more attention and education if AEC firms are going to deal with it. Per Wikipedia, “Working capital is defined as current assets less current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit and negative working capital.” They go on to say, “A company can be
endowed with assets and profitability but may fall short of liquidity if its assets cannot be readily converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.” While normally accounts receivable would be considered part of an AEC firm’s current assets, when clients take a year to pay their bills, you can hardly call it that. No bank would normally allow you to borrow on an accounts receivable-based line of credit for anything over 90 days old.
See MARK ZWEIG, page 12
THE ZWEIG LETTER OCTOBER 25, 2021, ISSUE 1414
Made with FlippingBook Annual report