Most construction businesses check the bank balance on a Friday and call it cash flow management. It tells you where you are. It tells you nothing about where you will be in six weeks, which is the bit that matters.
Why a normal cash flow forecast fails here
A standard forecast runs off invoice dates and assumes payment terms are met. Construction breaks both assumptions.
You apply for payment rather than invoicing. The customer certifies an amount, which may be less than you applied for. You invoice the certified figure. They pay it late. Part of it never arrives at all until the retention is released a year later.
So a forecast built on invoice dates is a forecast of something that does not happen.
What a construction forecast actually runs on
- Application dates and certification dates, by job
- How each customer actually pays, not what their terms say
- Retention held, by job, with release dates
- The CIS position, both suffered and payable
- VAT and PAYE due dates
- Subcontractor payment runs, which are usually weekly and unavoidable
Build it off that and it tells you something. Build it off invoice dates and it is decoration.
The structural squeeze
Two things push construction cash out and one thing pulls it in, and they are not on the same timetable.
You pay for materials on delivery and subcontractors weekly. You get paid monthly at best, after certification, minus retention, minus 20% CIS if you are a subcontractor yourself.
Since the VAT reverse charge arrived in 2021 you no longer hold your customer’s VAT for a couple of months either. That was working capital a lot of firms had quietly been running on.
The result is that growth costs cash. Winning more work makes the squeeze worse before it makes it better, which is why profitable construction businesses go under.
The numbers worth watching monthly
Applications made but not certified. Work you have done that nobody has agreed to pay for yet.
Certified but not paid. Your real debtor position.
Retention outstanding, by release date. Money you have already earned.
CIS suffered and not yet reclaimed. Your money sitting with HMRC.
Those four together usually add up to more than most owners expect, and every one of them is recoverable with a phone call rather than a bank facility.
Thirteen weeks, updated weekly
Thirteen weeks is the right horizon in construction. Long enough to see a problem coming, short enough that the numbers are real.
Update it weekly during a squeeze and monthly the rest of the time. A forecast built once a year is not a forecast.
If yours is a bank balance and a feeling
We build thirteen week forecasts off the live order book for construction clients, and keep them updated rather than filing them.
Have a look at cash flow forecasting or book a call.