Managing Payables & Working Capital

Cash management is a two-sided game: what comes in and what goes out.

Payables

Time your payments to subs and suppliers against your collections, and negotiate terms. (Know your state's rules on paying subs — "pay-when-paid" has legal limits.)

Working capital

Working capital = current assets − current liabilities — your buffer to bridge the gap. A line of credit can cover short-term crunches. Don't fund growth purely on overbillings; that money belongs to the job, not your pocket.

Going Deeper (Intermediate)

The other side of cash is accounts payable (AP) and working capital.

• Working capital = current assets − current liabilities — your short-term cushion.
• Manage AP deliberately: use trade credit (don't pay before due), but never miss real discounts or burn supplier relationships.
• Align outflow to inflow where the contract allows.

Advanced / Pro-Level

The levers:

• Early-pay discounts: "2/10 net 30" means 2% off if paid in 10 days instead of 30 — that's roughly a 36% annualized return on the cash. Take it when you can.
• Pay-when-paid clauses (where enforceable) align sub payments to owner payments, protecting your cash.
• Current ratio (current assets ÷ current liabilities) and working capital are exactly what sureties use to set your bonding capacity — typically bonding ~10× working capital. Building working capital literally buys you bigger jobs.
• Joint checks to subs/suppliers reduce risk on shaky deals.

Practice Challenge

A supplier offers 2/10 net 30 on a $50k bill. What's the savings and why take it if cash allows? (Answer: 2% × $50k = $1,000 for paying 20 days early — an ~36% annualized return on that cash, far better than letting it sit; take it whenever working capital permits.)

In Practice

A contractor funds growth by spending overbillings — money that belongs to the job — and hits a wall when those jobs need it. Keep a working-capital buffer and a credit line for the gaps.

Common Mistakes to Avoid

• Spending overbillings as profit
• No working-capital buffer or credit line
• Paying out faster than money comes in

Takeaway: Match what you pay out to what's coming in, and keep a working-capital buffer for the gap.

Educational content — not legal, financial, or accounting advice. Run your numbers with your CPA.