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Financial

Cash Flow

In Plain English

The timing of money coming in from the owner versus money going out to pay workers and suppliers.

Definition

Cash flow in construction is the timing and magnitude of money moving into and out of a project or company, including receipts from owner payments and disbursements for labor, materials, subcontractors, and overhead. Negative cash flow occurs when outflows exceed inflows, which can happen even on profitable projects due to retention, slow payment, or front-loaded costs. Cash flow projections are essential for project financial planning.

Why It Matters in Bidding

Cash flow, not paper profit, determines whether a contractor can make payroll and pay suppliers mid-project, and front-loaded mobilization plus 5-10% retention can starve cash even on a winning bid. Estimators and project managers model the payment timeline during procurement to decide whether a job is financeable and how to structure the schedule of values to stay cash-positive.

Example

The 10% retention on a $20M project meant the contractor was always owed $2M that couldn't be collected until project closeout, creating a significant cash flow challenge.

Related Terms

Progress PaymentRetentionOverbillingUnderbillingWork in Progress (WIP)

Related Tools & Templates

Cash Flow Projection Template

Frequently Asked Questions

Profit is recognized over the job, but cash leaves first to pay labor, materials, and subs while owner payments arrive 30 to 60 days later and retention is held until closeout. The lag between outflows and inflows, plus slow-paying owners, can drain working capital even when the final margin is healthy.
Common tactics include front-loading the schedule of values toward early mobilization line items, billing for stored materials, submitting billings promptly and accurately, negotiating shorter payment terms or reduced retention, and aligning subcontractor pay-when-paid terms with owner payments. Accurate cash-flow projections let managers anticipate shortfalls before they force borrowing.
Retention withholds a percentage, often 5 to 10 percent, of every payment until substantial or final completion, so the contractor effectively finances that amount for the life of the job. On large or long projects the accumulated retainage can tie up hundreds of thousands of dollars, which is why reducing retention is a frequent negotiation point.

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