In short
When revenue grows but cash runs short, the cause is usually the dates, not the profit. The client pays for a stage later than you pay subcontractors, suppliers, your own people and taxes. So look four weeks ahead by date, not at the month as a whole.
What this does not cover. Taxes, loans and capital structure. For those you need your accountant or finance director.
Profit and cash are different questions
Profit answers “are we earning?”. Cash in the bank answers “what do we pay with on Friday?”. A company can be profitable for the quarter and still not have the money to pay its subcontractors on the 28th.
A gap appears when money leaves before it arrives. For example, the client pays for a stage 60 days after the progress certificate, you pay subcontractors on the 28th of every month, and the client holds back 5% of every certificate until handover.
Where the dates usually part ways
- The client pays for a stage only once the certificate is signed, and weeks after that, while you pay crews and suppliers every month.
- The retention on every certificate comes back only after handover. In the report it is revenue, but it is not in the bank.
- A new site needs money now: materials, plant, the first crews. The first certificate is a month away, and the payment on it later still.
- Subcontractors, your own payroll, plant hire and taxes land in the same week.
- The owner withdraws money on a habitual schedule and does not look at the next payments.
Check four weeks ahead
A teaching example on a made-up company: a general contractor with three sites and a few million euros of revenue a year. €410,000 in the accounts. The progress payment for the first site came in yesterday; on the other two, €190,000 is late, and the clients promise to pay early next month. In week one you pay suppliers, in week two the plant hire, in week three, on the 28th, €365,000 to subcontractors and your own payroll, and about €40,000 of running payments in week four. Over the four weeks as a whole the balance ends positive, at €20,000. But in week three there is not enough cash: €130,000 short.
| Week | Receipts, € | Payments, € | Closing balance, € |
|---|---|---|---|
| 1 | 0 | 90,000 | 320,000 |
| 2 | 0 | 50,000 | 270,000 |
| 3 | 0 | 400,000 | −130,000 |
| 4 | 190,000 | 40,000 | 20,000 |
Weekly totals can still hide a gap inside a week. For large payments, such as the subcontractor run on the 28th, check the exact dates.
What to check in your company
- The dates of your three largest expected progress payments. Is the certificate signed? Did the client confirm the date, or do you expect it “from experience”?
- Which payments can move without a penalty and without losing a crew’s or a supplier’s trust?
- Who reminds clients to pay the certificates? Is that in anyone’s job at all?
- How much retention do your clients hold right now, and when does each part come back?
- How much cash has to stay in the account to get through the 28th calmly?
If the gap is there
- Get each stage certified as soon as it is done: the payment term usually runs from the date of the certificate.
- Pay subcontractors for the quantities the site manager has signed off, not for everything on the invoice.
- Collect the retention on a site already handed over: gather the documents without which the client will not release it.
- Name the person who tracks when certificates are due to be paid and reminds the clients.
- Shift the owner’s withdrawals to the week after the 28th.
DecideWrite down what you will do, who owns it and when you look again