CCIFP Cash Flow Management 3

Question 1

What is a construction draw schedule, and who typically prepares it?

Accepted Answer

A periodic billing plan tied to project milestones prepared by the contractor and approved by the lender or owner

Answer

A draw schedule outlines when and how much the contractor will request from the owner or lender at defined project stages, providing structure to the cash receipt process.

Question 2

Which of the following best describes the 'cash flow gap' problem commonly faced by construction contractors?

Accepted Answer

The timing mismatch where labor and material costs are paid before owner payments are received

Answer

Contractors must pay workers weekly and suppliers within 30 days while owners typically pay 30–60 days after billing, creating a recurring gap that requires working capital financing.

Question 3

How do joint checks issued by an owner directly to a subcontractor and general contractor together primarily benefit construction cash flow management?

Accepted Answer

They ensure subcontractors are paid from owner funds, reducing the GC's cash outlay and lien exposure

Answer

Joint checks require both parties to endorse them, ensuring sub-tier payments come directly from the owner's funds rather than the GC's operating cash, reducing the GC's financing burden and lien risk.

Question 4

When analyzing a construction company's statement of cash flows, which section reveals the company's ability to fund operations from its core contracting activities?

Accepted Answer

Cash flows from operating activities

Answer

Operating cash flows reflect cash generated or consumed by the company's primary contracting operations, such as collecting receivables and paying suppliers and payroll.

Question 5

What is the effect of accelerating subcontractor invoice approvals on a general contractor's overall project cash flow?

Accepted Answer

It generally increases the GC's cash outflows earlier but can reduce subcontractor claims and improve project efficiency

Answer

Faster sub invoice approval and payment can reduce costly delays, back-charges, and disputes, even though it accelerates cash outflows, ultimately improving overall project economics.

CCIFP - Certified Construction Industry Financial Professional Practice Test

CCIFP - Certified Construction Industry Financial Professional Practice Test

CCIFP Cash Flow Management 3