How Payment Terms Affect Your Cash Flow

If you start work on 1 January, complete the month, and submit your application, you likely won’t be paid until early March on 30-day terms.

That means January’s work is paid two months later.

In the meantime, you are paying wages weekly, covering suppliers, and funding overheads. Cash is leaving your account long before it comes in.

On 45, 60 or 90-day terms, the gap is even bigger. You are financing the job.

Most subcontractors feel the pressure but don’t measure it. They don’t know how deep the negative point is or when it hits.

That’s why you need a cash flow forecast.

It shows:

• When money goes out
• When money comes in
• The lowest point in your bank balance

At the start of most jobs, you will be cash flow negative. The issue is not whether it happens. The issue is whether you planned for it.

Our last video on the cashflow series covers this, with a programme example, watch it here:

Subcontractor's Toolkit: Payment Terms & Cashflow