Cash flow is the lifeblood of every subcontracting business. According to industry data, 82% of small businesses fail because of cash flow problems, and construction subcontractors are hit harder than most. The average subcontractor waits 83 days to receive payment, creating a massive gap between when expenses are paid and when revenue comes in.
Why Cash Flow is Different for Subcontractors
Unlike retail or service businesses that collect payment at the point of sale, subcontractors face a unique financial challenge. You purchase materials upfront, pay your crew weekly, and then wait weeks or months for the general contractor to process your invoice. This creates a structural cash flow gap that must be actively managed.
The typical payment chain looks like this: you complete work, submit an invoice, the GC reviews and approves it, the GC submits to the owner, the owner processes payment, the GC receives funds, and finally you get paid. Each step adds days or weeks to your payment timeline.
Building Your Cash Flow Forecast
The first step to managing cash flow is understanding it. A cash flow forecast projects your expected income and expenses over the next 30, 60, and 90 days.
Track Your Receivables
Know exactly who owes you money and when you expect to receive it. AI-powered payment prediction tools can analyze your clients' historical payment patterns and give you a confidence-weighted forecast. Instead of guessing, you'll know that Metro Builders typically pays in 18 days with 94% reliability, while Wilson Plumbing averages 52 days.
Map Your Expenses
Fixed expenses like insurance, equipment payments, and office costs are easy to forecast. Variable expenses like materials and labor require more attention. Track them by project so you understand the true cost of each job.
Calculate Your Gap
The difference between your receivables timeline and your payables timeline is your cash flow gap. If you pay expenses in 7 days but collect in 60 days, you need enough working capital to cover 53 days of operations.
Seven Strategies to Improve Cash Flow
1. Invoice Immediately from the Job Site
Every day you delay sending an invoice is a day added to your payment timeline. Photo-to-invoice technology lets you create and send professional invoices in under 5 seconds, directly from the job site. Contractors who invoice same-day get paid an average of 14 days faster than those who invoice weekly.
2. Negotiate Better Payment Terms
Before you sign a contract, negotiate payment terms. Request progress payments tied to milestones rather than a single payment at project completion. Net-15 terms instead of Net-30 can dramatically improve your cash position.
3. Use Invoice Factoring Strategically
Invoice factoring lets you receive payment immediately in exchange for a small fee. For critical cash flow moments, paying 1-2.5% to receive funds in 30 minutes rather than 60 days can be a smart business decision. The key is using it strategically, not as a crutch.
4. Build a Cash Reserve
Aim to maintain 2-3 months of operating expenses in reserve. This buffer absorbs the inevitable late payments without forcing you to take on expensive debt or turn down new projects.
5. Screen Your GCs Before Bidding
Not all general contractors pay the same way. Use GC rating and scoring tools to research a contractor's payment history before you bid on their project. A higher-paying job from a slow payer might be worth less than a standard-rate job from someone who pays in 15 days.
6. Automate Your Collections
Set up automated payment reminders that escalate over time: email on day 7, SMS on day 14, AI voice call on day 21. Consistent, professional follow-up dramatically reduces the average days to payment without damaging client relationships.
7. Protect Your Payment Rights
File preliminary notices on every project and track your lien deadlines religiously. These legal protections ensure you always have recourse if a payment dispute arises.
Measuring Cash Flow Health
Track these key metrics monthly to gauge your cash flow health: your average days sales outstanding (DSO), your current ratio (current assets divided by current liabilities), your collection rate (percentage of invoices paid within terms), and your cash conversion cycle (days between paying expenses and collecting revenue).
The Bottom Line
Cash flow management isn't glamorous, but it's the skill that separates thriving subcontracting businesses from those that struggle. By combining smart financial practices with modern technology, you can break free from the feast-or-famine cycle and build a business that grows steadily.