With tariffs, interest rates, and other factors continuing to drive economic uncertainty, cash flow management should be a top priority for construction businesses. Here are nine tips for better maintaining your company’s liquidity:

1. Stay on top of forecasting.

Cash flow forecasting is essential—the more granular, the better. One best practice is to conduct rolling 13-week forecasts. Doing so is especially useful if you experience seasonal variations in your work volume. That way, you can account for variables that trigger rapid fluctuations in cash inflows and outflows, enabling you to better anticipate impending shortfalls.

2. Ask for upfront payment.

It’s no secret that construction businesses often incur substantial costs before a project even begins. If a contract doesn’t include some percentage of upfront payment, you may run into cash flow issues when job-related bills come due—typically months before you’ll be paid. Some contractors even negotiate to have the project owner billed directly by vendors for materials and supplies, saving both cash and administrative time and effort.

3. Continuously improve invoicing.

Slow payment by owners has long been a nagging problem for the industry. Some will drag their feet regardless, but don’t give them excuses by, for example, sending outdated, confusing, or incomplete invoices.

Additionally, develop a formal billing schedule—clearly outlined in each contract—and provide owners with multiple payment options (such as online portal, credit card, or check). And establish a system for prompt follow-up on late payments.

4. Consider early-payment incentives.

If on-time payment rates are particularly troublesome, explore offering owners an early-bird discount for paying ahead of schedule. Naturally, you must first crunch the numbers to ensure you don’t drastically undercut your profit margin.

Under the right circumstances, the benefits—receiving revenue more quickly and avoiding the costs and frustration associated with prolonged collection efforts—may outweigh the slight revenue reduction. Should you decide to implement early-bird discounts, factor them into bids and add detailed language to your contracts.

5. Leverage financing, as appropriate.

Paying in full for construction equipment, machinery, insurance, or other business expenses isn’t always the best route. This is particularly true if doing so severely depletes cash on hand or substantially reduces working capital. Financing may be a better option because it spreads the payments over time. Plus, under the recently enacted One Big Beautiful Bill Act, you may be able to deduct more business interest expense than in the past few years.

6. Improve internal communication.

In many construction companies, various functions—such as operations, sales and estimating, accounting, and human resources—function in separate silos. Strong communication among them is critical for cash flow management.

For instance, your cash flow forecasting will likely benefit from input from your estimators, who may be aware of upcoming revenue ebbs and flows based on their interactions with current and prospective owners. Similarly, project managers can help ensure that your formal billing schedule is followed by providing regular and timely job updates.

7. Build and maintain a cash reserve.

Construction businesses should set aside liquid capital for “emergencies.” These can encompass everything from the urgent need to replace a piece of equipment to dealing with unexpected disruptions, such as a pandemic or natural disaster. Keeping nine to 12 months of operating expenses in a cash (or capital) reserve can also reduce the risk that you’ll have to assume additional debt to satisfy project deadlines.

8. Regularly monitor relevant key performance indicators (KPIs).

Tracking the right KPIs can help you identify potential red flags regarding your cash flow. Net cash flow, for example, shows the flow of cash for a certain time period. If the figure is negative, your collections on accounts receivable may be lagging.

Another commonly used KPI is days sales outstanding (or days in accounts receivable). This is the average time between issuing an invoice and receiving the corresponding payment. When the number exceeds 30 days, a cash crunch could be looming.

9. Let us help.

Cash flow management is often challenging for construction business owners. If you ever feel overwhelmed or would just like an objective review of your processes, contact us. We can help you set up rolling forecasts, tighten up accounts receivable practices, establish a sound banking strategy, and choose optimal KPIs to track and improve financial reporting.

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