Cash Flow Management
Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: CFO, Controllers, Project Managers
Purpose
Establish procedures for managing cash flow to ensure liquidity and support operations.
Why Cash Flow Matters
Cash is King in Construction:
- Projects require upfront investment
- Payment cycles are long (30-90 days)
- Retention is held for months
- Seasonal fluctuations occur
- Growth consumes cash
Cash Flow ≠ Profit:
A profitable company can run out of cash. A company with cash can survive losses temporarily.
Cash Flow Cycle
Bid → Award → Mobilize → Work → Bill → Collect → Pay
↑ ↓
←──── Cash Out ←──── Cash In ←──────┘
(Gap = Financing Need)
Typical Construction Cash Cycle:
- Work performed: Day 0
- Invoice submitted: Day 30
- Payment received: Day 60-90
- Meanwhile, payroll every week/biweekly
Cash Flow Projection
13-Week Cash Flow Forecast:
================================================================
13-WEEK CASH FLOW FORECAST
================================================================
As of: _____________
Week Week Week Week ... Week
1 2 3 4 13
─────────────────────────────────────────────────────────────
Beginning Cash ___ ___ ___ ___ ___
RECEIPTS:
Collections ___ ___ ___ ___ ___
Other income ___ ___ ___ ___ ___
Total Receipts ___ ___ ___ ___ ___
DISBURSEMENTS:
Payroll ___ ___ ___ ___ ___
Subcontractors ___ ___ ___ ___ ___
Materials/vendors ___ ___ ___ ___ ___
Equipment ___ ___ ___ ___ ___
Overhead ___ ___ ___ ___ ___
Debt service ___ ___ ___ ___ ___
Taxes ___ ___ ___ ___ ___
Total Disbursements ___ ___ ___ ___ ___
Net Cash Flow ___ ___ ___ ___ ___
Ending Cash ___ ___ ___ ___ ___
Line of Credit Avail___ ___ ___ ___ ___
Total Liquidity ___ ___ ___ ___ ___
Sources of Cash
Operating Cash:
- Customer collections
- Retention releases
- Mobilization payments
- Progress billings
Financing:
- Bank line of credit
- Equipment financing
- Factoring/ABL
- Owner capital
Other:
- Asset sales
- Tax refunds
- Insurance recoveries
Uses of Cash
Operating Disbursements:
- Payroll (weekly/biweekly)
- Subcontractor payments (monthly)
- Material/vendor payments
- Equipment costs
- Overhead expenses
Debt Service:
- Loan payments
- Line of credit
- Equipment notes
Other:
- Tax payments
- Distributions
- Capital expenditures
Accelerating Cash Inflows
Invoice Promptly:
- Bill immediately when earned
- Don't wait for month-end
- Submit complete applications
- Follow up on approvals
Collect Aggressively:
- Track AR aging
- Call on day 31
- Escalate past 60 days
- Use collections procedures
Optimize Billing:
- Front-load schedule of values
- Bill mobilization if allowed
- Bill for stored materials
- Request early payment discounts
Retention Management:
- Track retention by project
- Request release at milestones
- Submit complete closeout packages
- Don't leave money on the table
Managing Cash Outflows
Payroll:
- Largest, most predictable outflow
- Cannot delay without consequences
- Forecast accurately
Subcontractors:
- Pay within contract terms
- Protect lien waiver flow
- Negotiate terms if needed
- Coordinate with your collections
Vendors:
- Take early payment discounts if cash available
- Use full payment terms if cash tight
- Communicate if issues arise
- Protect credit/relationships
Discretionary:
- Delay non-essential purchases
- Lease vs. buy analysis
- Time major expenditures
Cash Flow Strategies
Strategy 1: Align Inflows and Outflows
Goal: Collect before you pay
Customer pays you: Day 60
You pay sub (Net 30): Day 60
You pay vendor (Net 30): Day 60
If customer pays Day 90:
Request Net 45 from sub = Day 75
Request Net 45 from vendor = Day 75
Strategy 2: Front-Load Billing
Legitimate Ways:
- Higher % for early mobilization
- Material on-site billing
- Equipment in early phases
- Phased billing structures
Caution:
- Don't over-bill excessively
- Maintain credibility
- Watch balance sheet impact
Strategy 3: Line of Credit
Purpose:
- Bridge timing gaps
- Seasonal fluctuations
- Growth capital
Best Practices:
- Establish when you don't need it
- Keep availability
- Pay down when cash available
- Communicate with bank
Cash Flow KPIs
| KPI | Formula | Target |
|---|---|---|
| Days Sales Outstanding | (AR ÷ Revenue) × 365 | under 45 days |
| Days Payable Outstanding | (AP ÷ COGS) × 365 | Match DSO |
| Cash Conversion Cycle | DSO - DPO | Minimize |
| Current Ratio | Current Assets ÷ Current Liabilities | over 1.25 |
| Quick Ratio | (Cash + AR) ÷ Current Liabilities | over 1.0 |
| Cash as % of Revenue | Cash ÷ Annual Revenue | 5-10% |
AR Aging Management
Aging Buckets:
| Bucket | Status | Action |
|---|---|---|
| Current | OK | Monitor |
| 31-60 days | Warning | Call PM |
| 61-90 days | Problem | Escalate |
| over 90 days | Critical | Executive action |
Weekly AR Review:
- Review aging report
- Identify past-due
- Assign follow-up
- Track progress
Cash Flow Crisis Response
If Cash Becomes Tight:
Immediate Actions:
- Accelerate collections
- Delay non-essential purchases
- Communicate with bank
- Review upcoming obligations
Short-Term:
- Draw on line of credit
- Negotiate vendor terms
- Accelerate billing
- Defer discretionary spending
If Serious:
- Engage advisors
- Communicate with stakeholders
- Develop recovery plan
- Consider all options
Seasonal Cash Management
Construction Seasonality:
| Season | Cash Characteristics |
|---|---|
| Spring | Ramp-up, cash needed |
| Summer | Peak work, peak payroll |
| Fall | Billing catches up |
| Winter | Collections, lower costs |
Planning:
- Build reserves in good months
- Plan for slow periods
- Line of credit for peaks
- Forecast seasonality
Related Documents
- WIP Reporting
- Collections Procedure
- Pay Application Process
- Banking Relationships
Software Integration
BLDR Pro:
- Project billing status
- Progress tracking
- Pay app generation
Accounting System:
- AR aging
- Cash forecasting
- Bank reconciliation
Template provided by support.construction. Cash flow is the lifeblood of construction.