Construction finance, explained.
Straight answers to the money questions every contractor runs into: retainage, progress billing, job costing, cash flow, and getting paid faster. No jargon.
Getting paid
What is retainage in construction?
Retainage (also called retention) is a percentage of each progress payment, usually 5 to 10 percent, that the payer holds back until the project is substantially complete. It protects the owner or general contractor against unfinished or defective work, and it is released at closeout. Contractors are owed retainage on the work they bill (receivable) and may hold it back from their own subs (payable).
ReadHow do you track retainage receivable and payable?
Track retainage on both sides of every job: the amount held from your billings (receivable) and the amount you hold from each sub (payable). For each, record the percentage, the running balance, and the expected release date, then reconcile at closeout so every withheld dollar is collected or released on time.
ReadWhat is DSO (days sales outstanding) in construction?
Days sales outstanding (DSO) is the average number of days it takes to get paid after you invoice. In U.S. construction it commonly runs 60 to 90 days, roughly double the level analysts consider healthy. A lower DSO means cash arrives sooner, which is often the difference between making payroll comfortably and scrambling.
ReadHow do contractors get paid faster?
Contractors get paid faster by removing friction and delay from collections: invoice the moment work is billable, send a reminder before and right after the due date, escalate slow or risky payers sooner, track lien deadlines, and give customers an easy way to pay. A consistent cadence beats occasional, ad-hoc chasing.
ReadWhat is a payer score, and how do you predict slow-paying customers?
A payer score is a rating, often 0 to 100, of how reliably a customer pays, learned from how they have actually paid you over time rather than what they promise. It lets a contractor prioritize collections toward the slow and risky payers, and price or qualify future bids based on real payment behavior.
ReadBilling
What is progress billing (and AIA billing)?
Progress billing invoices a project in stages as the work is completed, rather than in one lump sum at the end. Each billing, called a pay application, claims a percentage of the contract based on work in place. On many commercial jobs this follows the AIA G702 and G703 format, which itemizes the schedule of values and the retainage withheld.
ReadWhat is a schedule of values (SOV)?
A schedule of values (SOV) breaks the total contract price into individual line items, each with a dollar value, that together equal the contract amount. It is the basis for progress billing: each pay application claims a percentage of completion against these line items, so everyone agrees on how much of each scope is done and billable.
ReadWhat is over and under billing (and the WIP report)?
Over billing means you have billed more than the work completed to date, and under billing means you have billed less. The work-in-progress (WIP) report compares billings to earned revenue across all jobs, revealing over and under billing, and it is a standard requirement for bonding companies and lenders because it shows the true financial state of the work.
ReadJob costing
Cash flow
How can a contractor improve cash flow?
Contractors improve cash flow by speeding up inflows and seeing problems early: invoice the day work is billable, run a consistent collections cadence, track and chase retainage, bill every completed draw, watch job costs in real time, and keep a rolling 13-week forecast so a tight week is visible weeks before it arrives.
ReadHow does a 13-week cash flow forecast work for contractors?
A 13-week cash flow forecast projects your cash week by week over the next quarter. It predicts when each open invoice will actually be paid, lays in payroll and bills coming due, and flags any week where projected cash falls below your next payroll, giving you weeks of warning instead of a nasty surprise.
ReadTools
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