The four primary contractor cash flow challenges are: (1) draw schedule delays: getting paid in milestones while costs run daily; (2) retainage: clients withholding 5-10% until final completion; (3) slow-pay clients: commercial accounts that take 45-90 days; (4) material price volatility: lumber, steel, and concrete prices fluctuating between bid and build.
Contractor Guide
Managing the draw schedule gap, project-to-payroll timing, and when to use working capital strategically.
Contractor Funding Center
Contractors have a fundamentally backward cash flow model compared to most businesses: expenses precede revenue by weeks. You buy materials in Week 1, pay your crew through Week 8, and receive your first significant payment in Week 4, and that payment may represent only 20-30% of the contract value. The rest comes later, milestone by milestone, subject to approval delays, inspection schedules, and lender holdbacks.
The cash flow paradox is this: the more jobs you win, the more working capital you need before any of them pay. A contractor who wins 3 new jobs in one month needs to mobilize all three simultaneously, often requiring $50,000-$150,000 in upfront capital before a single draw arrives.
Different contract types have different cash flow timing profiles:
| Contract Type | Payment Structure | Capital Need Window | Typical Duration |
|---|---|---|---|
| Residential remodel | Deposit + milestones | Week 1-3 (materials) | 4-8 weeks |
| New residential construction | Monthly draws (lender) | 30+ days before first draw | 4-12 months |
| Commercial TI | Monthly draws or milestones | 30-60 days before first draw | 2-12 months |
| Government/municipal | Net-30 to Net-60 invoicing | Entire project before any payment | Variable |
| Subcontract (to GC) | Pay-when-paid or milestones | Dependent on GC draw schedule | GC timeline + 2-4 weeks |
For each active project, track these 4 dates:
Sum these gap days across all active projects to determine your total working capital need at any given time.
Most contractors run all money through a single account. This creates constant confusion between available balance and committed expenses. A 3-account system solves this:
| Account | Purpose | Target Balance |
|---|---|---|
| Operating Account | All deposits in, all project costs out | 2 weeks of overhead |
| Payroll Account | Funded weekly from operating account | Exactly next payroll |
| Working Capital Reserve | Funded when operating is above target | $15,000-$50,000 |
The operating account receives all project payments. Every week, transfer the exact payroll amount to the payroll account. Any operating balance above your 2-week overhead target moves to working capital reserve. This automatically builds your reserve during strong project months and depletes it during gap periods, exactly the pattern you want.
| Situation | Use MCA? | Why |
|---|---|---|
| Multiple jobs starting simultaneously, materials needed before any draw arrives | Yes | MCA unlocks multiple simultaneous projects that otherwise would have to be staggered |
| Payroll shortfall 3 days before payday, draw arrives in 5 days | Consider | Small, short-term bridge: evaluate if timing permits a smaller advance |
| Growth opportunity requiring new equipment or crew | Yes | Capital enables revenue growth that exceeds MCA cost |
| Account chronically near zero for 6+ months | Not yet | Underlying cash flow problem needs structural fix, not more debt |
| Single large project with confirmed lender draw approval | Maybe | Bridge until first draw. Size to exactly what you need, not maximum available. |
The most dangerous period for contractor MCA repayment is project transitions: when one job closes and the next hasn't started producing deposits yet. Here's how to manage it:
Working capital for materials, payroll, and project mobilization. Review begins as soon as your file is complete.
T.A.G. Business Funding
500 FICO minimum. Bank declines OK. Revenue matters more than credit score. The funding provider sets the actual decision timeline after reviewing a complete file.
500 FICO minimum · $4K-$6K+/month revenue · Funding timing is set by the funding provider after review
What are the main cash flow challenges for general contractors?
The four primary contractor cash flow challenges are: (1) draw schedule delays: getting paid in milestones while costs run daily; (2) retainage: clients withholding 5-10% until final completion; (3) slow-pay clients: commercial accounts that take 45-90 days; (4) material price volatility: lumber, steel, and concrete prices fluctuating between bid and build. Each creates a different type of cash flow gap that requires different solutions.
How can a contractor improve cash flow without taking on more debt?
Operational cash flow improvements before turning to financing: (1) require 30-40% deposits on all jobs; (2) send invoices immediately on milestone completion rather than waiting for month-end; (3) negotiate Net-60 terms with suppliers while requiring Net-15 from clients; (4) offer 2% early payment discounts to clients to accelerate receivables; (5) track every job's profit margin in real time so you know immediately if a job is eating cash.
When should a contractor use financing to manage cash flow?
Financing is appropriate when: you have a confirmed job with a signed contract but need material capital to start; you have receivables that are 30-60 days out but payroll is due this week; you are facing a seasonal slow period but overhead continues; or a growth opportunity (larger contract) requires more working capital than you currently hold. Financing cash flow gaps on performing businesses is rational; financing losses is not.
What is a contractor's working capital ratio and why does it matter?
Working capital ratio = current assets ÷ current liabilities. For contractors, a healthy ratio is 1.5-2.0, meaning you have $1.50-$2.00 in short-term assets for every $1.00 in short-term obligations. Below 1.2 and you are operating too close to the edge: a single delayed payment can create a cascade of missed obligations. Most MCA underwriters look at your bank statement average daily balance as a proxy for working capital health.
