Managing Cash Flow in the Construction Sector: A Guide for UK Builders

Cash flow is the lifeblood of any business, but in the construction industry, managing it can feel like walking a tightrope. From delayed client payments to upfront materials and subcontractor costs, even profitable projects can bring cash shortages. For firms across Salford, Swinton, and Greater Manchester, staying financially agile is essential to staying afloat. 

At Co-gency Chartered Accountants, we help construction companies get to grips with the financial realities of their industry—through better planning, real-time reporting, and full compliance with HMRC regulations like the Construction Industry Scheme (CIS) and VAT reverse charge. 

Unlike many other industries, construction businesses often pay out long before they get paid. Consider the typical cycle: 

• Pay deposits on materials 

• Cover wages or subcontractor fees 

• Face delayed or staged payments from clients 

• Deal with CIS deductions at source 

• Handle unexpected site costs or weather delays 

This constant imbalance between outgoing and incoming funds can lead to cash flow gaps, even if the business is technically profitable. Without visibility and forward planning, that gap can widen into serious financial strain. 

The foundation of good cash flow management is a working forecast. Use cloud accounting tools like Xero or FreeAgent to track: 

• Upcoming project payments 

• Expected inflows from invoices 

• Outgoing costs (labour, materials, insurance, etc.) 

• Tax liabilities (VAT, CIS, Corporation Tax) 

Real-time insights make it easier to anticipate when you may need to adjust your spending or speed up collections. At Co-gency, we help our construction clients set up tailored cash flow forecasting models—so they’re not caught off guard. 

Many high-net-worth individuals prefer to invest in property, but direct property investments do not qualify for BPR. However, alternative investment strategies exist: 

• Trading Businesses: Investing in asset businesses like hotels that qualify for BPR and AIM-listed companies. 

• Family Investment Companies: Structuring family wealth through corporate or trust setups to maximise tax efficiency. 

It sounds simple, but many construction firms delay invoicing—especially on complex projects or retentions. To stay cash flow positive: 

• Invoice immediately upon milestone completion 

• Include all necessary details to prevent delays 

• Send payment reminders before the due date 

• Follow up quickly on overdue invoices 

A consistent invoicing system helps reduce debtor days and builds client trust. 

Under the Construction Industry Scheme, contractors must deduct tax at source from subcontractor payments. That means if you’re working as a subcontractor, you may receive less cash than expected—even though the tax is being paid on your behalf. 

Understanding how CIS impacts your income and how to reclaim deductions is crucial to accurate cash planning. If you’re a contractor, we can manage your CIS registrations and monthly filings. 

📎 Download our “Navigating CIS” guide 

Construction companies often fall under the VAT reverse charge rules, which shift the responsibility for paying VAT from the supplier to the customer. This affects your cash inflow (no VAT added to invoices) and your outflow (no reclaimable input VAT on some purchases). 

Not understanding this properly can lead to: 

• Incorrect invoices 

• Unexpected VAT bills 

• Cash flow miscalculations 

📎 Download our “Navigating VAT in Construction” guide 

Learn more about reverse charge VAT for building and construction services on GOV.UK. 

Labour is one of the most significant outgoings in any construction project. For companies managing a mix of PAYE staff and subcontractors, it’s vital to: 

• Forecast labour costs for each phase of the build 

• Track CIS deductions accurately 

• Factor in pension auto-enrolment and holiday pay 

We help clients automate labour cost reporting through integrated payroll and accounting systems—perfect for use in tenders, funding applications, or internal review. 

Late or inconsistent payments can quickly derail your cash flow. Setting clear payment terms, invoicing promptly, and following up systematically are crucial habits. 

 
For a deeper dive, read our blog: A Construction Company’s Guide to Managing Customer Payments. It covers practical steps — from setting expectations to legal recovery options — that can help you stay in control. 

If cash flow gaps are inevitable during certain times (such as waiting on retention payments), consider your funding options early: 

• Invoice finance 

• Short-term working capital loans 

• Asset-based lending 

The key is to avoid panic borrowing or using personal credit. At Co-gency, we can advise on affordable options and help present your books clearly to lenders. 

For a deeper dive, read our blog: A Construction Company’s Guide to Managing Customer Payments. It covers practical steps — from setting expectations to legal recovery options — that can help you stay in control. 

At Co-gency Chartered Accountants, we specialise in helping builders, developers, and contractors manage their finances and stay compliant with HMRC. 

From CIS returns to cash flow forecasting and VAT reverse charge management, our team understands the challenges unique to your industry. We’ve supported construction firms across Salford and Swinton for over 30 years. 

📞 Book a free consultation today and discover how we can help your business stay cash flow positive—even when projects get tough.