A contractor with twenty years in the trades described his position on r/Contractor. Design-build business, a full gut renovation, a basement finish and a small addition lined up. Real work, real experience, doing the design and permit submissions himself.
He was also constantly fronting money for labour and materials, sometimes with $200 left in his checking account, and living in his van to keep costs down.
He was not short of work. He was short of cash, and those are different problems with different solutions. Confusing them is why contractors respond to a cash crisis by taking on more jobs, which makes it worse.
The short answer
Never spend more of your own money on a job than the customer has already put in. Every structural fix below serves that one rule. A contractor who follows it can be under-priced and disorganised and still survive; one who ignores it can be profitable and still fail.
Where the money actually goes
The sequence is the problem, and it is invisible while things are going well.
Day 1. You win the job. Nothing has happened financially.
Day 3. You order materials. Your money leaves, either as cash or as a supplier account you must settle in thirty days.
Days 5 to 15. Your crew works. Payroll runs weekly regardless of anything else.
Day 16. You invoice.
Day 30 to 60. You get paid, assuming nothing goes wrong.
For four to eight weeks you have funded someone else's renovation. On one job that is manageable. On four simultaneously it is a business, and the amount of your own money in circulation is larger than most contractors have ever calculated.
Watch out
This is why growth is the most common cause of a cash crisis. Every additional job consumes materials and labour before it pays anything back. A contractor going from four jobs to eight has not doubled his income yet; he has doubled the amount he is lending out, and the income arrives a month after the cost.
Fix one: deposits that cover the order
The most important structural change, and the one most often set too low.
A deposit is not a commitment signal. Treating it as one leads to token amounts that do nothing for cash. Its job is to fund the front of the project.
Size it against the material order plus mobilisation. If materials are $6,000, a $1,000 deposit means you are personally financing $5,000 before anyone has paid you anything. A third on signing is common for project work and the right test is arithmetic rather than convention: does it cover what you must spend before the next payment arrives?
Say it plainly at the quote stage, not at signing. "Deposit on signing, second payment when the units are set, balance within seven days of completion." Terms disclosed early are normal business practice; terms produced at the last minute feel like a condition.
Apply it to every job, including small ones and repeat customers. The exceptions are where exposure accumulates and they are almost always granted to the people most likely to use them.
Fix two: progress payments
For anything running longer than a few days.
Thirds are the common structure: signing, a defined midpoint, completion. The specific split matters less than two properties:
You are never carrying a large unpaid balance. The most exposed contractor is the one who invoices everything at the end, because the entire job is unsecured credit until the final cheque clears.
The final instalment is small enough that withholding it is not worth an argument. A customer disputing a $1,000 final payment on a $15,000 job is annoying. One disputing $15,000 is an existential problem, and the difference is entirely in how the payments were structured.
Tie the midpoint to something visible. "When the rough-in passes inspection" is objective. "Halfway through" invites debate about what halfway means.
Fix three: invoice the same day
Unglamorous and immediate.
An invoice sent two weeks after completion signals that you are not tracking closely, and it moves your payment date two weeks later for no reason. The work is done; the paperwork is the only thing standing between you and the money.
Two habits that follow from it: send it the day the work finishes, and put the due date on the invoice rather than assuming everyone knows your terms.
Then chase on a written schedule rather than by mood. A reminder at one week, the invoice resent at two, a phone call at three, a formal demand after that. The schedule matters more than any individual step, because improvised chasing is what lets a slow payer become a bad debt. The full sequence, and what to do when it fails, is in what to do when a customer will not pay.
Fix four: supplier terms
The lever contractors most often leave unused.
If you pay suppliers on delivery and collect thirty days after completion, you are financing every job for weeks out of your own reserves. If you have thirty-day supplier terms and collect a deposit up front, the arithmetic reverses and the job partly funds itself.
Open accounts with your main suppliers rather than paying at the counter. It takes paperwork and it changes the shape of your cash cycle more than almost anything else available.
Match the terms to your collection cycle where you can. Thirty-day supplier terms against thirty-day collection is neutral. Payment on delivery against sixty-day collection is a permanent overdraft you are funding personally.
Watch the discount trap. Early-payment discounts are worth taking only if you have the cash to spare. Paying early to save 2% while running your own account to $200 is buying a small saving with a large risk.
Cash problems are often demand problems in disguise: an uneven pipeline forces you to accept badly structured jobs. Our free check looks at whether your site is capturing the enquiries it already gets, and where they go when they arrive. Twenty checks, about fifteen seconds.
The number that warns you first
Two figures, and most contractors track neither.
Days sales outstanding. The average days between invoicing and payment. Total outstanding divided by average daily revenue. It rises months before your bank balance reflects it, which makes it the only genuine early warning you have.
Receivables ageing. How much is outstanding, split by how overdue: current, 30 days, 60, 90+. Anything past sixty needs a decision rather than another polite reminder.
Both fit in a spreadsheet. The reason they matter is that cash problems do not arrive as one event. They accumulate as a set of balances nobody is watching, and by the time the bank balance makes it obvious the oldest ones have gone cold.
A third figure worth having: committed costs not yet invoiced. Materials ordered and subs booked on jobs still running. A business can look solvent purely because bills have not arrived yet, and this is the number that reveals it.
The seasonal version
Worth separating, because a seasonal business can be genuinely healthy and still feel like this for half the year.
Trades with strong seasonality earn most of their margin in a few months and spend the rest covering overhead. Overhead does not pause. Insurance, vehicles, software and any salaried staff continue through the quiet months at full cost.
That produces a punishing pattern: a peak season too busy to think, followed by a shoulder season during which the money that felt earned quietly drains away.
Two things help.
Judge profitability across twelve months, not by the month. A quiet March at a loss and a busy July in profit can be the same healthy business. Monthly judgement in a seasonal trade produces panic in spring and complacency in summer.
Sell something recurring. Maintenance plans, service agreements, seasonal contracts. Their value is not primarily revenue; it is revenue arriving in the months when nothing else does, which is what stops a contractor pricing desperately in February. Work won at any price in a slow month damages the whole year.
What not to do
Four responses that feel like solutions and make things worse.
Taking on more work. The instinctive move and the wrong one. Each new job consumes cash before it produces any, so accelerating into a cash crisis deepens it.
Cutting prices to win work faster. Converts a cash problem into a margin problem, and you now need even more volume to cover the same overhead.
Skipping insurance to free up money. A contractor described paying a helper under the table while saving up for workers compensation. If that person is injured or damages a client's property, the exposure dwarfs the premium. Under-pricing creates the pressure that makes this feel necessary, which is the actual problem.
Financing personally without recording it. Contractors routinely put materials on a personal card and never book it, which makes the business look more profitable than it is and hides how much is being lent to it.
The connection to pricing
Cash flow and margin are separate problems that share a cause, and it is worth being explicit about which you have.
A margin problem means the jobs themselves do not produce enough. Fixing the cash cycle does not solve it; it just moves the shortfall around. The check is to cost one completed job end to end, including estimating, drawing and coordination time, and compare the real margin against what you assumed. That method is in why am I busy but not making money.
A cash problem means the jobs are fine and the timing is not. Deposits, progress payments and supplier terms fix it directly.
Most struggling contractors have both, and the order matters: fix the cash cycle first, because it is faster and it buys you the room to fix pricing without panic. Raising prices while unable to make payroll next week is a plan that requires time you do not have.
Once there is breathing room, the pricing correction is the one that compounds, and the arithmetic for it is in how to price a job as a contractor.
Financing, and when it is legitimate
Worth addressing because the reflex is to treat all borrowing as failure, and in a business that funds jobs before it gets paid that is the wrong instinct.
Defensible: a line of credit that bridges a known collection cycle. If deposits and terms are set correctly and you still have a predictable gap between paying suppliers and being paid, that gap is a working capital requirement rather than a mistake, and financing it is what the facility exists for.
Not defensible: borrowing to cover a margin problem. If the jobs themselves do not produce enough, credit postpones the discovery and enlarges it. The test is simple: would this gap close if collections were on time? If yes, it is a cash problem. If no, it is a pricing problem wearing a cash costume.
The trap in between is equipment financing taken during a busy stretch. Payments continue through the quiet months at full cost, so a purchase that looked comfortable in July becomes part of the February problem. Judge any monthly commitment against your slowest month, not your best one.
A practical rule: arrange the facility before you need it. Lenders are considerably more willing when the accounts look healthy, and a contractor applying while unable to make payroll is applying at the worst possible moment.
A one-week reset
- List every outstanding invoice with its age. Chase anything past thirty days today.
- Calculate days sales outstanding. Write the number down; it is your baseline.
- Add up committed costs not yet invoiced. This is usually the uncomfortable one.
- Check your deposit policy against your actual material spend per job.
- Open or renegotiate one supplier account for terms.
- Set the chasing schedule and give it an owner.
- Work out your slowest month's fixed costs, and treat that as the reserve target.
Step three is where most people find the surprise. A business that looks solvent frequently is solvent only because invoices have not arrived, and knowing that number changes which jobs you are willing to take next month.