Building Predictable Cash Flow in an Unpredictable Industry

Cash flow forecasting strategies that help construction contractors manage liquidity, timing gaps, and project risk

The construction industry is inherently unpredictable. Contractors routinely face weather delays, shifting project scopes, and external factors far outside their control. Yet one of the most persistent, and unique, challenges in this industry is maintaining enough liquidity to avoid delayed vendor payments, slowed production, or outright job shutdowns. As it happens, cash often goes out before it comes in. Progress billing, retainage, change orders, and scope drift create timing gaps that can strain liquidity even when projects are profitable.  

Cash flow forecasting helps bridge these gaps. It is the process of predicting the timing of incoming cash (billing and payment collection) and outgoing cash (labor, materials, equipment, subcontractors, overhead) over the life of the project and/or across the entire company. While forecasting looks slightly different for general contractors and subcontractors, a disciplined approach is essential to achieving and maintaining positive cash flow. 

Starting with the schedule of values

A strong project-level cash-flow forecast begins with a well‑constructed Schedule of Values (SOV). An effective SOV not only allocates revenue in a logical, measurable way but also anticipates the timing of material purchases and other major cost drivers. Contractors should carefully review contract terms to understand the billing cadence and aim to bill ahead of known future costs wherever contractually permitted. This helps secure the liquidity needed to keep work moving. 

Next, contractors should forecast when costs will actually occur and when payments will need to be made. Some costs, such as payroll and labor, may be easy to anticipate. Others, like materials, equipment, and subcontractors, require more careful planning. Materials are usually estimated at the beginning of the job but purchased when needed or when cash is available. This could lead to some months having higher expenditures than others, heavily impacting liquidity. 

Although project managers play a central role in understanding field processes and upcoming costs, the accounting and management team is equally critical. They oversee the delicate balance between billing and paying bills. The team should understand vendor payment terms and ensure outstanding invoices are paid according to those terms, especially when early-pay discounts are available. Additionally, they should monitor accounts receivables closely to prevent cash flow strain caused by significantly aged invoices.    

Ongoing forecasting discipline

Finally, effective cash-flow forecasting requires consistent use of best practices, including: 

1. Maintaining monthly WIP schedules, job cost reports, and internal budgets. Monthly updates provide timely insight into project performance and job‑level liquidity, far more effectively than quarterly reviews. 
   
2. Monitoring differences between accrual‑basis performance and cash‑basis activity. A well‑constructed WIP schedule highlights over/under billing positions, helping contractors identify timing gaps between revenue/cost recognition and actual cash movement. Incorporating accounts receivable into the WIP further clarifies outstanding billings and expected collections. 
3. Create a rolling 13-week cash forecast. Whether managed in a spreadsheet or through software automation, a short‑term forward‑looking forecast offers clear visibility into upcoming billings, collections, and cash outflows. It allows contractors to identify cash shortages early, prioritize payments, and accelerate collections where necessary. 

The payoff of proactive forecasting

At its core, cash‑flow forecasting is about staying ahead of the job, not reacting to it. When contractors pair well‑designed SOVs with realistic cost timing, consistent WIP management, and short‑term forecasting tools, they create a financial early‑warning system that helps prevent job slowdowns, strained vendor relationships, and surprise cash shortages. With the right structure and habits in place, even the most unpredictable projects can be supported by predictable, reliable cash flow. 

Looking to improve cash flow predictability across your jobs? Contact your Keiter Opportunity Advisor| Call 804.747.0000| Email 

Internal Controls in the Construction Industry