Cash Flow for Contractors: Stop Bankrolling Your Clients' Projects

Construction sits at or near the top of the insolvency tables year after year, and the firms going under are rarely the bad ones. They're busy contractors with full order books who ran out of cash before they ran out of work. You can be profitable on paper and dead in the bank — and the mechanism that kills you has a name: the cash gap.

The cash gap: how contractors run out of money

Here's the gap on a typical job. You buy materials in week one, out of your own pocket. You pay labour every Friday. You invoice when the job's done, on 30-day terms, and the client stretches that to 45. From the first delivery to the money landing, you've financed the entire project. Every job a contractor takes on standard terms is an interest-free loan to the client — they just don't call it that.

Put numbers on it. An £18,000 job: £7,000 of materials up front, £6,000 of wages across six weeks, invoice at completion, paid in week ten if you're lucky. You're £13,000 out of pocket for over two months — on one job. Run three jobs like that at once and you're carrying nearly £40,000 of other people's projects. That's why turnover grows and the bank balance doesn't.

Four levers that close the gap

Lever one: money in sooner. Take a deposit that covers materials before you order them — you should never be the one funding the client's kitchen. Break anything over two weeks into stage payments tied to visible milestones. Invoice the day a stage completes, not on Friday when you get round to it. And chase at 7 days overdue, not when you're desperate — the longer an invoice sits, the colder it gets.

Lever two: money out later. Open trade accounts with your merchants — 30-day supplier terms turn week-one materials cash into week-five cash, which can line up with the client's first stage payment instead of coming out of your reserves. This is the cheapest financing you will ever get, and most merchants hand it out to anyone with a trading history.

Lever three: shrink the gap itself. On long jobs, bill fortnightly applications rather than end-of-stage lumps. Keep the final balance small — 10%, not 40% — because the last payment is always the slowest. And never let variations pile up unbilled; every 'while you're here' you haven't invoiced is your money doing unpaid work in someone else's budget.

Lever four: build a buffer. One month of running costs — wages, van, insurance, materials float — in an account you don't touch. The test is simple: could you absorb your biggest client paying 30 days late without missing a wage run? If the answer is no, every job you price is a gamble, whatever the margin says.

The warning sign: funding last job with this job's deposit

One warning sign deserves its own paragraph: using this job's deposit to pay last job's bills. It feels like cash flow management. It's actually a treadmill — each new job is servicing the previous one, and the moment the pipeline hiccups, everything lands at once. If you recognise this pattern, fixing it is the most urgent job on your books.

The one number to watch weekly

Finally, watch one number weekly: total outstanding, and the age of the oldest unpaid invoice. Contractors who know that number chase early and calmly; contractors who don't, discover it in a crisis. An invoicing app that chases automatically at 7, 14 and 30 days keeps that number moving without you having to be the bad guy — but even a whiteboard beats not knowing.