By Patrick Hogan, handle.com

Cash flow in construction is notoriously unpredictable. Projects start, work progresses, and costs pile up long before payment hits your account. Delays in invoicing, slow approvals, and late payments can leave subcontractors and suppliers scrambling to cover payroll, materials, and other expenses.

Without steady cash flow, even the most profitable projects can turn into financial headaches. That’s why improving invoicing practices isn’t just a small administrative fix—it’s a critical strategy for maintaining stability, reducing risk, and ensuring long-term business success.

For 2025, here are practical steps to take control of cash flow, from structuring payment terms to leveraging automation and protecting payments through lien management.

Set Payment Terms That Work for You

Construction businesses often operate under standard payment terms that don’t necessarily serve their financial needs. Too many subcontractors default to Net-30, Net-45, or even Net-60 terms—effectively giving their customers an interest-free loan. Meanwhile, they’re still expected to pay for materials, labor, and overhead.

It’s time to rethink payment terms to better align with your cash flow needs.

• Negotiate shorter terms – Instead of accepting Net-30 or longer, push for Net-15 or progress payments. Faster payment cycles help keep cash moving.
• Enforce late fees – Adding reasonable interest or penalties on overdue invoices creates urgency and discourages slow payments.
• Clarify retainage terms – Retainage often becomes a major cash flow issue, with final payments dragged out for months. Set clear expectations in your contracts about when retainage will be released.

Customers who value your work will respect fair payment terms. The key is to set expectations upfront and not wait until an invoice is overdue to address payment issues.

Use Progress Payments to Avoid Cash Gaps

Waiting until project completion to invoice is a common mistake that puts businesses in a financial bind. Cash flow stops and starts unpredictably, creating unnecessary pressure. Instead, progress payments provide a more consistent stream of income throughout a project.

How to Implement Progress Payments Effectively

• Break invoices into stages – Instead of one final invoice, bill at defined project milestones.
• Use percentage-based billing – Many subcontractors bill based on work completed (e.g., 30% upfront, 40% at midpoint, 30% at completion).
• Invoice immediately – Don’t wait for the end of the month. The sooner invoices are sent, the sooner payments can be processed.
• Request deposits – On larger jobs, requesting a deposit before work begins helps offset upfront costs.

Progress billing keeps cash moving and reduces financial risk. If your customer has cash flow issues of their own, staged payments make it easier for them to pay rather than holding off on a lump sum until the end.

Automate Invoicing and Payment Follow-Ups

One of the biggest reasons businesses experience cash flow issues isn’t necessarily late payments—it’s slow invoicing. Payments can’t be made on time if invoices aren’t sent promptly.

Benefits of Automated Invoicing

• Immediate invoice delivery – Paper invoices get lost. Digital invoices reach customers instantly.
• Automated reminders – Set up reminders for customers before and after due dates to keep invoices top-of-mind.
• Real-time tracking – See which invoices are due, which are overdue, and what needs follow-up.

Subcontractors and suppliers who still rely on manual invoicing often experience delays in sending out bills, leading to delays in receiving payments.

Automation eliminates this lag, making it easier to predict when payments will arrive.

Strengthen Payment Security with Lien Management

Even with strong invoicing practices, some payments will still be delayed—or worse, never come. That’s where lien rights come into play. Mechanics liens are one of the most powerful tools for securing payment to subcontractors and suppliers.

How Lien Management Improves Cash Flow

1. Preliminary notices create visibility – Many states require a preliminary notice to secure lien rights. These notices let owners and general contractors know you’re on the project and expect to be paid.
2. Deadlines prevent lost payments – Every state has strict deadlines for filing liens. Miss one, and you lose the ability to enforce payment. Tracking these deadlines ensures you keep your legal options open.
3. Lien waivers should be handled carefully – Never issue a lien waiver before payment is received. Conditional lien waivers can be used to provide reassurance while still protecting your rights.

Strong lien management ensures subcontractors and suppliers have leverage when payments slow down. It also discourages slow-paying customers from pushing payments too far past due dates.

Addressing Common Payment Delays

Even with all these strategies in place, cash flow can still be impacted by customers who delay payments. Handling these situations proactively can make a big difference in your financial stability.

How to Prevent and Handle Late Payments

Check payment history – Check the customer’s payment track record before signing a contract. If they have a history of late payments, adjust terms accordingly.

Send invoices promptly – The sooner an invoice is sent, the sooner it can be processed.

Follow up consistently – Don’t wait weeks to check on an unpaid invoice. Follow up as soon as a payment is late.

Be ready to escalate – If a customer consistently delays payments, use lien rights or legal action to enforce payment.

Late payments are one of the biggest threats to cash flow predictability. A proactive approach keeps accounts receivable under control.

Cash Flow Is More Than Just Getting Paid—It’s About Control

Cash flow unpredictability doesn’t have to be the norm in construction. By setting strong payment terms, leveraging progress payments, automating invoicing, and using lien rights effectively, subcontractors and suppliers can take control of their financial stability.

The more predictable cash flow becomes, the easier it is to manage operations, plan for growth, and reduce financial stress. Taking these steps now will help ensure that payments arrive on time, reduce uncertainty, and keep your business on solid financial ground.

With a structured approach, subcontractors and suppliers can reduce cash flow disruptions and maintain financial strength, even in an unpredictable industry.

About the Author:

Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors and material suppliers with lien management and payment compliance. The biggest names in construction use Handle on a daily basis to save time and money while improving efficiency.