Cash flow in construction: stage payments, retentions and the CIS squeeze
Contractors and subcontractors fund the work before they are paid for it, then wait again for retentions. A few habits protect cash on every job.
Construction has a cash problem built into how it works. Labour and materials are paid for weeks before an application for payment is approved, a portion is held back as retention, and subcontractors also lose 20% of each payment to CIS deductions until they reclaim them.
Spending runs ahead of payments for most of the job; the retention comes back months later.
Show the data
| Wk 0 | £0 |
|---|---|
| Wk 1 | £-12,000 |
| Wk 2 | £-24,000 |
| Wk 3 | £-18,000 |
| Wk 4 | £-31,000 |
| Wk 5 | £-22,000 |
| Wk 6 | £-35,000 |
| Wk 7 | £-26,000 |
| Wk 8 | £-38,000 |
| Wk 9 | £-27,000 |
| Wk 10 | £-30,000 |
| Wk 11 | £-19,000 |
| Wk 12 | £-25,000 |
| Wk 13 | £-14,000 |
| Wk 14 | £-18,000 |
| Wk 15 | £-8,000 |
| Wk 16 | £-10,000 |
| Wk 17 | £-2,000 |
| Wk 18 | £4,000 |
| Wk 19 | £9,000 |
| Wk 20 | £15,000 |
Habits that protect cash
- Agree a payment schedule, with dates, before starting.
- Submit applications for payment on time, with the evidence the client needs.
- Price for the cost of waiting: retentions and slow payers are part of the job.
- Keep a register of retentions by job and chase them on their release dates.
- For subcontractors with companies, offset CIS deductions against PAYE monthly.
The VAT domestic reverse charge means many subcontractors no longer receive VAT from contractors, which removes a temporary cash cushion. Factor that into the cash plan.
This insight is general information, not advice for your circumstances. Talk to us before acting on it.