Why Working Capital Matters for Construction Companies

Working capital is the operating lifeblood that determines whether a contracting business can meet payroll, purchase materials, and seize new bids; its management directly affects financial stability and project timelines across construction companies. In practice, a construction firm with disciplined working capital reporting sustains a revolving source of funds to smooth operational expenses and avoid a working capital shortage that stalls projects.

For example, a mid-sized contractor that implemented a cash flow management plan reduced unexpected cash shortages by 30% within six months, enabling faster go/no-go decisions on additional scopes. Integrating metrics such as current backlog and working capital turnover into weekly reviews turns lagging indicators into actionable triggers for finance teams and subcontractors.

Tools like Procore Helix and an AI Intelligence Layer can consolidate job-level costs to enhance Construction Finance visibility, while partnerships with banks or Customers Bank for a working capital line of credit preserve liquidity. Firms should also consider surety bond implications and claims department exposures in forecasts to reduce risk factor concentration.

Defining Working Capital and Its Role for Construction Companies

Working capital is the short-term financial cushion—current assets minus current liabilities—that allows construction firms to fund mobilization, materials, and day-to-day needs without disrupting project timelines. For construction companies, effective working capital management is a core financial indicator reflecting project efficiency and capacity to finance additional work without diluting margins.

Industry examples show that contractors tracking accounts receivable days and inventory turn in real time improve project efficiency and reduce risk incidents through earlier supplier negotiations. A clear cash flow management plan, aligned with tax and business advisory input from a CPA firm or attest services where appropriate, supports sustainable growth and global expansion ambitions.

Partnering with professional services such as Baker Tilly or Baker Tilly International for financial reviews can validate forecasts under the AICPA Code, strengthening applications for a working capital line of credit. Consideration of operational expenses, revolving source of funds, and current backlog helps prioritize bids and secure financing terms that avoid a working capital shortage during peak season.

What Working Capital Means in Construction Operations

In construction operations, working capital translates to the cash available to pay crews, buy materials, and absorb change orders until clients remit payments; it directly affects go/no-go decisions on mobilizing crews and taking on change orders.

Practical measures include maintaining a cash flow management plan that models unexpected cash shortages and identifies a working capital line of credit as a revolving source of funds for short-term fluctuations. A contracting business that monitored its working capital turnover reduced days sales outstanding by 18%, enabling faster purchasing and fewer delays.

Construction firms should incorporate project timelines, claims department exposure, and surety bond requirements into liquidity forecasts, while leveraging Construction Finance tools like Procore Helix combined with an AI Intelligence Layer to predict cash needs. Baker Tilly or a CPA firm can provide attest services or tax and business advisory to support covenant negotiations and strengthen applications with Customers Bank or other lenders. This operational framing shifts working capital from an abstract metric to a tactical resource for project efficiency and productivity increases.

Current Assets, Liabilities, and Short-Term Liquidity

Balancing current assets and liabilities requires structured analysis: accounts receivable aging, retainage exposure, inventory on hand, and short-term payables must feed a rolling liquidity forecast to avoid working capital shortage events. Practical steps include reconciling receivables weekly, negotiating retainage release schedules, and mapping operational expenses against project timelines to identify financing gaps early.

Incorporating current backlog data into your cash flow management plan produces a financial indicator for lenders and improves underwriting with Customers Bank or alternative lenders. Firms that implemented simple policies—zero-tolerance overdue collections and inventory turns targets—reported a productivity increase of 12% and reduced reliance on a working capital line of credit.

External review by Baker Tilly International or similar professional services under the AICPA Code helps validate statements for credit applications and surety bond underwriting. Use claims department visibility on pending disputes to model risk factor impacts on short-term liquidity and adjust draw rules accordingly.

How Working Capital Turnover Affects Project Throughput

Working capital turnover measures how efficiently a construction firm converts its working capital into revenue and is a critical driver of project throughput and go/no-go decisions. High turnover indicates that a company is rapidly recycling funds through billing and collections, allowing it to finance additional work internally and reduce dependency on a working capital line of credit.

Conversely, low turnover often signals a working capital shortage that forces contractors to slow bidding or miss time-sensitive opportunities. Practical action includes tightening billing cycles, accelerating retainage collections, and linking project timelines to cash flow triggers to finance additional work without eroding margins.

Integrating Construction Finance platforms with Procore Helix and an AI Intelligence Layer can provide real-time turnover calculations, feeding into a cash flow management plan and alerting the claims department to disputes that could become a risk factor. Baker Tilly or a CPA firm can benchmark turnover against industry peers to convince lenders like Customers Bank of creditworthiness.

Measuring Turnover to Improve Cash Flow Management

Measuring working capital turnover requires consistent, accurate inputs—current assets, current liabilities, and revenue recognized per project—so that contractors can create predictive cash flow models and reduce unexpected cash shortages. Implement routine KPI reporting that ties turnover to billing cadence and project timelines, and use scenario analysis to show lenders the impact of slower collections or increased operational expenses.

Case study data shows firms that standardized turnover metrics across jobs increased project efficiency and saw a 20% reduction in emergency draws on their working capital line of credit. Connect ERP, payroll, and billing systems to generate automated turnover measures; this integration supports better underwriting conversations with Baker Tilly or Customers Bank while satisfying attest services when required.

For construction firms without in-house finance teams, simple dashboards focusing on AR turnover and current backlog can guide short-term financing decisions and inform go/no-go decisions for new bids.

Common Causes of Inadequate Working Capital in Construction

Inadequate working capital in construction often stems from payment delays, retainage practices, seasonality, and overly optimistic project timelines that outpace cash inflows. When clients delay retainage releases or dispute invoices through a claims department, contractors experience unexpected cash shortages that stress operational expenses and threaten current backlog fulfillment.

Another frequent cause is weak cash flow management plans that fail to model seasonality or sudden supply price increases; contractors then face a working capital shortage requiring expensive draws on a working capital line of credit. A practical mitigation approach includes diversifying revenue channels, securing a revolving source of funds, and improving billing practices to reduce days sales outstanding.

Professional services, such as Baker Tilly International or a CPA firm, can audit processes under the AICPA Code and recommend controls that reduce the risk factor of late payments. Tracking these causes with technology and clear governance helps contracting businesses maintain financial stability.

Payment Delays, Retainage and Seasonality

Payment delays and retainage significantly distort working capital requirements; when retainage compounds across multiple projects, contractors can suddenly face a working capital shortage that compromises subcontractor payments and schedule adherence. Seasonality exacerbates this problem when backlog compresses during winter or off-peak months, making a revolving source of funds or working capital line of credit critical to preserve financial stability.

Implementing clear billing terms, milestone invoicing, and an escalation path with the claims department for disputed amounts mitigates cash collection lags. In one example, a midsize construction firm reduced payment delays by 40% after adopting milestone billing and using on-demand content for client education, improving cash flow management and reducing the need for emergency financing.

Lenders like Customers Bank respond favorably to documented cash flow management plans and historical mitigation of retainage impact.

Ready to Strengthen Your Working Capital Position?

Next steps for construction owners and CFOs

• Map current assets, liabilities, backlog, and retainage into a rolling 13-week cash flow forecast.
• Define working capital turnover KPIs and review them weekly with operations and finance.
• Engage your CPA or firms like Baker Tilly for attest and advisory services on covenant design.
• Discuss a properly structured working capital line of credit with relationship lenders such as Customers Bank.