Cash Flow for Subcontractors: Why More Work Makes It Worse

If you've ever had your best sales month followed by your worst cash flow month, you understand this problem. You might not know why it happens or how to fix it.

The short answer is timing. The money you spend delivering a contract goes out long before the money for completing it comes in. And the more work you win, the wider that gap gets.

The structural problem

Here's the pattern. You win a contract. You buy materials, pay your labour, hire equipment, and cover delivery costs within the first few weeks. Your supplier terms are typically 30 days, sometimes less for materials.

Meanwhile, the main contractor pays you on 60-day terms. Sometimes 90. Some don't pay until the work is certified, adding further weeks.

You're cash negative on every contract for the first two to three months. If you're running one or two contracts at a time, the gap is manageable. But when you win three or four at once, the combined cash outflow can be crippling.

This is how businesses with strong order books end up struggling to make payroll. It's not a revenue problem. It's a timing problem.

Why more sales don't fix it

The instinct when cash is tight is to push for more work. More revenue should mean more cash. In a contract business, it often means the opposite in the short term.

Every new contract requires upfront spending. Every new contract adds to the gap between money going out and money coming in. If you're already stretched, adding another contract makes the pressure worse before it gets better.

This is one of the most counterintuitive aspects of running a contracting business. And it catches people out regularly.

What actually helps

Forecasting is the starting point. Not a vague sense of what's coming, but a proper cash flow forecast mapping expected income and expenditure week by week for the next three to six months. When you can see the gaps coming, you can plan for them.

Beyond forecasting, understanding your options matters. Invoice finance can bridge the gap between completing work and receiving payment. A cash reserve built during good months smooths the difficult ones. Negotiating better terms or earlier payment milestones can reduce the gap at source. And timing material purchases to align with income rather than project schedules helps manage outflow.

The third piece is having someone who understands how contract cash flow works. Most bookkeepers process transactions. They don't forecast the timing of cash movements across multiple overlapping contracts. A financial controller who's worked with contracting businesses understands the pattern and can help you stay ahead of it.

Getting ahead of the problem

If your cash flow doesn't match your sales and you're constantly feeling the squeeze despite winning good work, the problem is structural. Structural problems have structural solutions.

I've put together a guide for subcontractors covering this and four other common financial challenges. Download it from my contracts page.