Construction Cash Flow: Why “Busy” Doesn’t Mean “Profitable”

Introduction

Construction companies often fall into the same trap: jobs are stacked, crews are working overtime, the phone won’t stop ringing — yet the bank balance is tight. Contractors call this the “busy but broke” cycle, and it’s one of the biggest financial threats in the industry.

The issue isn’t revenue. It’s cash flow — and construction cash flow behaves differently from any other industry. Progress billing, slow-paying GCs, retainage, upfront material costs, and labor-heavy phases create massive gaps between money going out and money coming in.

This guide breaks down why contractors struggle with cash flow and how forecasting, job costing, AR management, and dashboards bring stability, predictability, and financial control.

Why Contractors Struggle With Cash Flow

Construction cash flow is uniquely volatile because:

1. Progress Billing Delays Incoming Cash

Contractors must complete significant work before sending the first invoice — often weeks into the project. During this time, you’re paying for labor, subs, and materials long before you get paid.

2. Slow-Paying GCs Drain Liquidity

GCs often take 30–90 days to pay, even after approving an invoice. Without proper AR tracking by GC, contractors don’t realize how much cash is tied up in outstanding invoices.

3. Upfront Material Purchases Create Cash Spikes

Materials, equipment, and mobilization costs require upfront cash. When a contractor pays thousands before the first invoice, bank balances drop sharply.

4. Retainage Withholds Profit Until the End

Retainage locks away 5–10% of revenue until project completion — essentially freezing profit you’ve already earned.

5. Poor Job Costing Masks True Cash Needs

If costs aren’t accurately assigned to jobs, you can’t forecast when you’ll need cash — or if a project is bleeding money.

6. No Real-Time Visibility

Without updated job performance data, contractors rely on gut instinct rather than numbers. By the time they see a problem, the project is already behind.

Why You Need Job-Based Cash Flow Forecasting

Traditional cash-flow forecasting is based on historical spending.
Construction forecasting must be based on JOBS.

A job-based model includes:

• Upcoming labor weeks

• Subcontractor payouts

• Material orders still pending

• Project schedules

• Billing milestones

• projected retainage

• burn rate per phase

• AR expected dates

• payment history by GC

This produces a 30–90 day cash runway, showing exactly when:

• Cash will tighten

• Expenses will spike

• Large invoices will be paid

• Equipment purchases are safe

• You can take on more jobs

• You must slow spending

It transforms cash management from reactive to proactive.

AR Aging for Contractors: The Silent Cash Flow Killer

Most contractors lose tens of thousands every year due to:

• Slow-paying GCs

• Incorrect or lost invoices

• Unapplied deposits

• Retainage not tracked separately

• No weekly follow-ups

• AR not aging by GC

Construction AR is NOT a generic accounting function — it’s an operational necessity.

At Salisbury Bookkeeping, we fix AR by:

• Tracking AR aging by GC

• Flagging slow payers

• Monitoring retainage as a separate asset

• Matching deposits to invoices properly

• Providing weekly follow-up lists

• Creating AR dashboards showing who owes what

This alone stabilizes contractor cash flow more than any other single action.

Cash Flow Dashboard Features That Keep Contractors Alive

A contractor’s dashboard must include:

• Daily cash position

• Burn rate per job

• Labor-heavy weeks upcoming

• Material orders still unpaid

• AR aging by GC

• Retainage outstanding

• Billing milestones

• Projected cash runway

• WIP performance impact on cash

This is where you finally see the connection between job costing → forecasting → cash flow.

Real Scenarios Contractors Face (And How Forecasting Helps)

Scenario 1: Labor Costs Outpace Billing

Forecasting shows labor-heavy weeks BEFORE they hit your bank account, giving you time to adjust.

Scenario 2: A GC is 45 Days Late

AR dashboards make slow-paying GCs obvious so you can accelerate follow-ups and adjust spending.

Scenario 3: Material Prices Spike Unexpectedly

Forecasting reveals how overages will affect completion costs and cash runway.

Scenario 4: Too Many Jobs Start at Once

Forecasting prevents over-extension by showing whether cash can support mobilization.

Scenario 5: New Hire Planning

Forecasting shows when you can confidently hire without risking payroll exhaustion.

Conclusion:

Construction cash flow is not just an accounting issue — it’s a survival issue. Contractors who depend on bank balance decisions or month-end reports are always one bad invoice or one slow-paying GC away from a crisis. That’s why the strongest, most profitable contractors manage cash proactively, not reactively.

Job-based forecasting, AR aging by GC, accurate job costing, and real-time dashboards give you the visibility you need to run a stable and scalable construction business. When you know exactly how much cash is coming in, how much is going out, and what each job is doing, you can lead with confidence instead of anxiety.

Most bookkeeping firms can reconcile the bank — but very few understand the deep operational cash-flow mechanics of construction. Salisbury Bookkeeping specializes in the systems that contractors rely on: job costing, WIP reporting, progress billing, AR/AP, and forecasting tied to real project schedules.

With a proper forecasting system, contractors stop being “busy but broke” and start becoming busy and profitable — with stable cash flow, strong margins, and a predictable financial future.