Top Cash Flow Killers in the Construction Industry

2025-06-03

Reading Time: 2 minutes 25 seconds

Maintaining positive cash flow is essential for the financial vitality of a company. While this is true for most industries, it has a special significance for capital-intensive businesses such as construction companies and contractors. Industry companies manage large projects that involve significant upfront costs, requiring a steady stream of cash to cover expenses. Without an optimized cash flow management process, costly issues and challenges can quickly arise. To ensure practices are effective, avoiding cash flow killers such as delayed invoicing, slow paying customers, and unexpected change orders is crucial. These can quickly create havoc on cash flow, leaving construction companies in challenging situations. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the top cash flow killers below:

Top Cash Flow Killers

• High Payroll – For those who provide labor-intensive work, the strain of having to meet weekly or bi-weekly payroll can drain cash flow. Trying to keep up with high payroll is a cash flow killer for many because employees must be paid. To avoid this issue, consider relying on subcontractors who typically invoice monthly for services rendered. Take advantage of a paid-if-paid or paid-when-paid clause, allowing payment to be delayed until payment is received from the project owner. This shifts the burden of late payments to the subcontractor.
• Slow-Paying Customers – Slow-paying customers can make it difficult for contractors to meet financial obligations. The funds needed to cover expenses, including labor, supplies, materials, and overhead costs, are impacted when collections are late. Delayed payments to suppliers and vendors can result in interest charges, late fees, and even reduced credit terms. Ongoing issues may result in required upfront payments or higher prices due to a poor credit history. Similar challenges can arise with subcontractors, creating unwanted and costly complications.
• Unexpected Change Orders – These official requests to make a change to the original scope of work are common in the industry. Unexpected change orders kill cash flow because they often require additional work, supplies and materials beyond the initial contract. The result is additional labor costs, higher material expenses, and, most importantly, project delays. This can create issues in other parts of the project, opening the door to unexpected cost increases.
• Inaccurate Estimating – Before a bid is submitted, managers review the project proposal to identify the expected costs, including those associated with subcontractors, supplies, materials, and other areas, to determine total expenses, revenue, and expected profit margins. However, if there is an error in the estimate, it can hurt cash flow. Not only will the contractor be expected to complete the work regardless of cost, but it is also unlikely they will be able to recuperate the cost, harming cash flow. While most have well-trained estimators, a minor oversight can lead to serious complications.
• Delayed Invoicing – Customers will not pay invoices they have not received. Construction companies need to regularly and consistently prepare and present invoices to customers for payment. Slow invoicing is a cash flow killer that can be avoided. Just because an invoice has been provided doesn’t mean the customer will pay on time. Consider using invoice reminders and other methods to ensure payments are received in accordance with invoice terms.

Contact Us

Maintaining positive cash flow is essential for construction companies. The easiest way to avoid these cash flow killers is by regularly reviewing payment policies, invoicing practices, and more. If you have questions about the information outlined above or need assistance with another tax or accounting issue, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.