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Financialaka: ARaka: receivables

Accounts Receivable

In Plain English

The money owed to a contractor by the owner for work that has been completed and billed but not yet collected.

Definition

Accounts receivable (AR) in construction represents the amounts owed to a contractor by the owner for completed work that has been billed but not yet paid. Managing AR closely is critical to cash flow, as slow-paying owners can create cash shortfalls even on profitable projects. AR aging analysis identifies overdue invoices for collection efforts.

Why It Matters in Bidding

Receivables are where a profitable bid can still sink a contractor, because work performed isn't cash until the owner pays. Estimators and PMs who understand AR build retainage, billing milestones, and slow-pay risk into how a job is priced and front-loaded. Tight AR management determines whether a firm can fund the next mobilization or must borrow against its line.

Example

A GC's controller runs the monthly AR aging and sees a $250,000 progress payment 45 days past due, so the PM escalates the pay app, documents lien deadlines, and pauses non-critical purchasing until the owner releases funds.

Related Terms

Accounts PayableCash FlowProgress BillingPayment Application

Frequently Asked Questions

Estimators who expect slow owner payment or steep retainage often front-load the schedule of values, accelerate early billings, and add financing cost into overhead. On public or developer work with known payment lags, the bid may carry a higher markup to offset the carrying cost of money tied up in receivables during construction.
Retainage is a percentage, commonly five to ten percent, that the owner withholds from each payment until substantial or final completion. It sits in receivables for months and can exceed a project's profit, so contractors track it separately, negotiate reduced retainage at milestones, and factor the delayed collection into cash-flow planning and bid markup.
Vet owner and lender financing before bidding, negotiate clear billing milestones and prompt-payment terms, submit clean, well-documented pay applications on time, and preserve mechanics lien and bond-claim rights with timely preliminary notices. Disciplined aging review and early escalation on overdue invoices keep collection cycles short and protect working capital for upcoming bids.

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