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Managing Cash Flow in Construction Projects: A Practical Guide

Good cash flow management is key to delivering successful construction projects, and protecting your businesses long term future.

Managing cash flow in construction isn’t easy. Long customer payment terms, upfront costs, and unexpected delays can all create major financial strain.


This guide covers the essential steps you can take to stay in control.

Common Cash Flow Challenges in Construction
  • Delayed payments from customers
  • Large upfront material and labour costs
  • Unexpected project delays or variations
  • Retention funds withheld longer than expected
  • Poor visibility over project profitability
Essential Steps to Managing Project Cash Flow
  • Create a Detailed Cash Flow Forecast for every Project

Estimate all receipts and payments for the project's duration. Make sure you consider payment terms, retention amounts, and expected timing of all cash movements - don't forget CIS!

  • Monitor Billing and Costs Closely

Regularly issue interim applications for payment to keep a regular flow of cash receipts. Track actual project costs against budgets in real time to get on top of any overruns as early as possible. 

  • Negotiate Favourable Payment Terms

Where possible, agree shorter payment terms from your customers and try to extend terms with your suppliers to ease the working capital burden.

  • Agree Variations Prior to Starting

The job you started is not always the same as the job you finish. Make sure all variations are agreed with your main customer contact in writing before carrying out the works. We all want to be helpful and move quickly - but this can make the difference between your job making a profit and a loss.

  • Manage and Monitor Retentions

Be aware and plan ahead for retention payments, both owed to you and to your subcontractors. Your accounting system should be setup to see this information with a click of a button to make it easy to control.

  • Build Contingency Buffers

Not every cost is going to come in at budget. Include allowances for unexpected costs, project delays or slow client payments to avoid a sudden cash shortfall that you are going to have to fund from other projects, or worse, personally.

  • Chase Payments Promptly

It is likely you are going to be up against long payment terms. Do not then let your customers go over those already long terms. Implement a strong credit control process to follow up on outstanding payments to reduce delays.

  • Review and Update Forecasts Regularly

Cash flow is not static - update your forecasts at least monthly based on actual performance and new information. For key projects we recommend a weekly review.

  • Get Your Invoicing Correct - First Time!

When working with large companies, they often have automated systems in place to approval/reject invoices. Do not give them a reason to reject your invoices. Rejected invoices can add additional weeks to your cash flow. Implement a solid sales invoicing process to ensure the data included on your sales invoices is accurate and in line with your customer requirements. 

  • Maintain and Strengthen Supplier Credit Accounts

Establish good credit terms with key suppliers and maintain strong payment relationship. This gives your business flexibility and protects cash flow, especially during busy periods. A simple example of this being 10 x £5,000 supplier accounts with 30-day credit limit is the same as a 0% £50,000 30-day bank loan!

Need Support Monitoring Projects and Improving Cash Flow?

Contact NEXA Accounting today to find out how we support you with better project and cash flow management to help your business thrive.

If you would like a PDF version of this document, please drop us an email and we will be happy to send you a copy.

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