How to Refinance Residual Funds
Working with fixed price contracts offers you the opportunity to maximize your company's profit potential. The faster and more efficiently you can complete the work outlined in a fixed price contract, the larger your profit for that particular agreement. This excess profit is called residual income. This type of income is not normally something you can count as guaranteed until the project is complete and the funds are in place. Residual income must be kept separate and used to finance other contracts that ended in a negative balance. This situation will require you to refinance the residual fund account.
Other People Are Reading
Instructions
-
-
1
Complete the project for which the funds have been paid. Review the project to insure completion and financial status.
-
2
Transfer excess funds from each contract into a general fund. Excess funds will remain in the general fund. Negative balances from other contracts are covered by the general fund.
-
-
3
Transfer necessary funds from your residual fund general account into new projects as necessary for immediate start up or completion. This action should only be taken in instances of extreme urgency. All residual funds used in this manner should be replaced into the general fund as soon as possible.
-
4
Track each residual fund transfer to monitor the status of the general account. These funds are an extra lifeline for your company that will allow you to continue operations during financially challenging times.
-
5
Never allow your residual fund general account to fall into the negative. Adjust your contract pricing if necessary to prevent future shortfalls.
-
1
