The Biggest Cash Flow Mistakes Construction Companies Make (and How to Avoid Them)

Great projects can sink a company if cash flow is messy. The issue isn’t always profitability—it’s timing. Here are the top cash flow traps and how to avoid them.

Mistake #1: Billing Too Late (or Too Little)

Contractors often front-load labor and materials but wait to bill. That’s a loan—from you.

Fix it: • Use progress billing tied to milestones. • Bill weekly on fast-moving jobs. • Add deposits for mobilization and long-lead materials.

Mistake #2: No Clear Payment Terms

“Net 30” with no enforcement is wishful thinking.

Fix it: • Define terms: deposit, progress payments, retainage, late fees. • Include payment triggers (inspection passed, materials delivered). • Use digital invoices and easy online payments.

Mistake #3: Ignoring Job Costing

If you don’t track materials/labor per job in real time, you can’t see overruns until it’s too late.

Fix it: • Track costs weekly: labor hours, materials, change orders. • Compare actual vs. estimate and adjust next invoice if needed. • Standardize your cost codes (demo, framing, finishes, etc.).

Mistake #4: No Policy for Change Orders

Verbal approvals kill margins.

Fix it: • Use a simple form (scope, cost, timeline impact). • No work until signed—seriously. • Offer quick digital sign-off (DocuSign, etc.).

Mistake #5: Buying Materials From Cash, Not the Job

If you pay from general funds and forget to allocate, your cash flow suffers.

Fix it: • Tie material POs to job numbers. • Use supplier accounts with 30–60 day terms. • Store receipts/photos in the job folder.

Mistake #6: No Cash Reserve or Financing Plan

Seasonality and slow payers happen.

Fix it: • Keep a 2–3 month operating reserve. • Consider invoice factoring or a line of credit to bridge gaps. • Forecast cash weekly: incoming vs. outgoing.

Mistake #7: Underpricing Overhead

If your overhead isn’t built into every estimate, you’re bleeding.

Fix it: • Calculate your overhead rate (rent, insurance, admin, trucks). • Add a markup that covers overhead and profit—don’t confuse the two. • Review quarterly and adjust.

Cash Flow Playbook (Simple) 1. Collect a deposit. 2. Progress bill weekly or at milestones. 3. Track job costs weekly. 4. Lock down change orders. 5. Use supplier terms. 6. Keep a reserve & forecast cash.