Building Financial Strength from the Field to the Office
In construction, cash isn’t just king; it’s the foundation on which your company is built. From managing payroll and subs to ordering materials and meeting bonding requirements, your ability to forecast and retain cash is what separates strategic leaders from knee-jerk contractors. When cash runs short, even profitable jobs can put a company at risk.
How do construction companies get ahead of their cash needs instead of scrambling behind them? The answer lies in having multiple views of your cash forecast and a toolbox of tactics to free up working capital when needed.
Three Critical Views of Cash Forecasting
The best-run construction companies don’t rely on a single forecast. They manage cash using three complementary timeframes:
Project-Based View
This forecast is tied directly to the job schedule and project-specific cash flows. It tracks expected billings, retainage release, major material/equipment costs, labor costs, and change orders.
Purpose: Gives project managers and finance visibility into when each job will require or generate cash.
Tip: Align this with your WIP schedule for maximum accuracy.
13-Week Cash Flow
This rolling short-term view is updated weekly to reflect inflows and outflows. It provides clear, near-term visibility across the company—not just per job.
Purpose: Helps leadership make operational decisions (e.g., holding off on purchases, timing draws, managing vendor payments).
Tip: Start with customer receipts, then add known disbursements like payroll, taxes, subcontractor pay apps, insurance, etc.
12-Month Cash Flow
A strategic view built from revenue projections, backlog, pipeline, and historical data. This long-term model allows you to stress-test growth, seasonality, and capital investment plans.
Purpose: A planning tool for owners, CFOs, and banks.
Tip: Model multiple scenarios, including delays in starts, collections, and slow-paying customers.
Cash Retaining Tactics: Methods to Improve Cash Flow
Even with the best forecasts, there will be times when your working capital is stretched. Below are practical methods construction companies use to retain more cash, each with pros and cons.
Negotiate Upfront Deposits or Mobilization Fees
- Provides early cash to offset startup costs.
- Reduces reliance on credit lines.
Con:
- Not always possible on public work or competitive bid jobs.
- Can create friction with new clients.
Accelerate Billing and Reduce Lags
- Faster invoicing = faster collections.
- Improves short-term liquidity.
- Requires disciplined field-to-office communication and tight closeout procedures.
Implement Early Pay Discounts with Clients
- Encourages faster payments, reduces aging A/R.
- Slight hit to margin; must evaluate if the cash benefit outweighs the discount.
Negotiate Extended Terms with Vendors
- Delays outflows without borrowing.
- Helpful during slow months.
- Can strain vendor relationships if abused.
- May lose early pay discounts.
Use Equipment Leasing vs. Purchasing
- Preserves cash, shifts costs to operating expenses.
- Over time, leasing can be more expensive.
- May have usage restrictions.
Factor or Finance Receivables
- Immediate cash from A/R.
- Useful when scaling quickly.
- High fees and interest.
- Can signal financial weakness to sureties or banks.
Retainage Financing
- Unlocks capital tied up in retainage, which can be substantial on large jobs.
- Specialized lenders; interest fees apply.
- Adds another layer to manage.
Improve Change Order Approval Processes
- Turns unpaid scope into billable revenue faster.
- Requires better documentation and follow-up.
- May slow field productivity if approvals are too bureaucratic.
Top-performing contractors master this rhythm by analyzing cash from multiple perspectives: short-term project forecasts, 13-week rolling cash views, and long-range 12-month models.
They combine these insights with disciplined, proactive strategies to keep working capital moving, even when pressure builds.
Forecast. Monitor. Act. Repeat. That’s how construction leaders deliver successful projects and build financially resilient businesses.
