Cash flow in construction
To help develop this article, click 'Edit this article' above
The cash flow sets out when costs will be incurred and how much they will amount to during the life of the project.
Predicting cash flow is important in order to ensure that an appropriate level of funding is in place and that suitable draw-down facilities are available.
Until the main contractor has been appointed, cash flow projections are likely to be based only on agreed fee payment schedules for consultants and a simple division of the construction cost over the likely construction period (or perhaps an allocation of construction cost over an s-curve distribution). It is only when the main contractor is appointed, a master programme prepared and some form of payment schedule agreed that cash flow projections become reliable.
Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).
Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly.
The government suggest that, 'Historically, it is has not been unusual for lower tier supply chain members to have to wait for up to 100 days to receive payment, which damages their cash flow and can harm their business.' Ref Cabinet Office, Project Bank Accounts – Briefing document.
In addition there are a number of remedies for late payment.
 Related articles on Designing Buildings Wiki
- Balance sheet.
- Business administration.
- Cash flow forecast.
- Construction organisations and strategy.
- Construction supply chain payment charter.
- Discounted cash flow.
- Earned value.
- Fair payment practices.
- Net Present Value.
- Project bank accounts.
- Remedies for late payment.
- The Late Payment of Commercial Debts Regulations 2013.
- Whole life costs.
- Working capital.
Featured articles and news
3 ways the world’s fastest growing economies can close the infrastructure gap.
The sooner early warning notices can be appreciated as of mutual benefit rather than one-sided advantage, the better.
BSRIA responds to government green storage announcement.
What is phenomenology and how does it relate to the built environment?
Read about Belgrade's Brutalist landmark - the Western City Gate.
Read about the measures that can be taken by individuals to protect and minimise exposure to outdoor sourced air pollution.
Government announces leaseholds on new-build houses will be banned.
Transport Secretary announces public consultation into London's funding of Crossrail 2.
Have a look at some of the most impressive concert stage designs of all time, including Pink Floyd, U2, Rolling Stones, and more...
What is the Home Quality Mark? Find out how it can help you when buying/renting a new home.
Business Secretary launches £246m Faraday Challenge to establish UK as world leader in battery technology.
Government announces new plans for regulations to improve safety and security awareness of drone users.
Read our introductory article to the various different types of fuel.