Construction cash flow, month by month, worked out

The job

All numbers are invented.

• Contract sum: $900,000, five months
• Cost to build: 92% of each month's billed value, so total cost is 900,000 x 0.92 = $828,000 and profit is 900,000 - 828,000 = $72,000
• Retainage: 10% of each payment, all released one month after the last payment
• Owner pays each application one month after billing
• The contractor pays its costs in the month they occur

Progress follows a typical curve, slow to start, fastest in the middle:

Each month's cash received is the previous month's billing less 10%. For month 3: 180,000 x 0.90 = 162,000.

Check the totals: earned 90,000 + 180,000 + 270,000 + 225,000 + 135,000 = 900,000. Costs 82,800 + 165,600 + 248,400 + 207,000 + 124,200 = 828,000. Cash received 81,000 + 162,000 + 243,000 + 202,500 + 121,500 + 90,000 = 900,000.

The running cash position

Cash position at the end of each month is everything received minus everything paid so far.

• Month 1: 0 - 82,800 = -$82,800
• Month 2: -82,800 - 165,600 + 81,000 = -$167,400
• Month 3: -167,400 - 248,400 + 162,000 = -$253,800
• Month 4: -253,800 - 207,000 + 243,000 = -$217,800
• Month 5: -217,800 - 124,200 + 202,500 = -$139,500
• Month 6: -139,500 + 121,500 = -$18,000
• Month 7: -18,000 + 90,000 = +$72,000

Check month 3 another way: paid out to date 82,800 + 165,600 + 248,400 = 496,800; received 81,000 + 162,000 = 243,000; 243,000 - 496,800 = -253,800. And the final +$72,000 equals the profit, as it must.

The peak cash need is $253,800 in month 3, more than three times the job's whole profit (253,800 / 72,000 is about 3.5). Even at the end of month 6, with every application paid except retainage, the contractor is still $18,000 out of pocket.

What changes the curve

Each of these is easy to test on the same table:

• Slower owner payment. A 60-day lag instead of 30 deepens and lengthens the hole.
• Retainage. At 5% instead of 10%, each payment is larger and the final release smaller. Retainage terms are set by contract and, on some work, state law; see retainage.
• Subs paid when the owner pays. If subcontracts let the contractor pay subs after it is paid, much of the cost moves later and the hole shrinks. How those clauses work, and where they are limited, is in pay-if-paid vs pay-when-paid.
• Stored materials. Billing for materials delivered but not installed brings cash forward, if the contract allows it.
• Front-loading the schedule of values. It brings cash forward too, but it is the wrong fix: owners reject it and it leaves the late lines underfunded. See schedule of values and pay applications.

Why sureties and banks care

Run several jobs like this at once and their holes stack. That is why sureties read working capital and the work-in-progress schedule before raising a bonding limit, and why banks size a line of credit to the contractor's backlog. A contractor with $300,000 of working capital could carry only one job like this at its peak, since two would need 2 x 253,800 = $507,600. Contractor financial ratios and bonding capacity and surety prequalification show the numbers they look at.

How to use this for the exam

The question may be one step from this table: an amount due this period, retainage held to date, or cash received in a month. Write the steps in the same order every time (earned, retainage, previous payments, due), and check with a second route, as above. The bulletin lists subject areas but not topics; our reading puts payment arithmetic under Procurement and Contracting Requirements, 31 of 115 questions.

Run the numbers

Take the free 10-question check. It needs no signup and explains every answer, including the arithmetic. For the Procurement and Contracting lesson and practice questions with every answer worked, see the plans.

Sources

• PSI Candidate Information Bulletin 1458, content outline, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• All numbers are invented and were worked twice.

FAQ

Why does a profitable job run short of cash?

Costs are paid as the work happens, while the owner pays later and holds retainage until the end. The contractor carries the gap.

When is cash need usually highest?

Around the busiest months, when costs are high and payments still lag. In this example it peaked in month 3.

Is front-loading a fix for cash flow?

No. It brings cash forward but underfunds the late work, and owners and sureties watch for it.