Across my work with contractors on financial modeling, forecasting, and strategic planning, one question comes up more than any other, and it has nothing to do with margins or profitability. It usually sounds more like: “We’re busy. The pipeline’s full. So why does cash still feel tight?”

Nine times out of ten, it comes back to the same issue: milestone billing. 

That gap—between when the work happens and when the cash actually hits—that’s where most cash flow issues live. And it’s a lot harder to manage than most contractors expect until they’re already feeling it.

Construction is one of the few industries where revenue and cash are loosely bound. A contractor can be doing real work, making real progress on a project, and still have no contractual right to bill for it. That gap between when work happens and when cash arrives is where most construction cash flow problems can be found, and it’s a harder problem to manage than most contractors realize until they’re already in it. 

How Milestone Billing Works 

Most construction contracts structure payment as a series of milestones tied to percent complete thresholds. A typical schedule might look like:  

• 10% upfront at mobilization 
• 20% when foundation work is complete 
• 20% at framing 

and so on through substantial completion and final closeout. 

In theory, that structure makes perfect sense. It aligns payments with progress and protects the owner from paying for work that hasn’t been done yet. But in practice, it creates a cash flow model that is far more difficult to forecast than almost any other business type. 

The reason? Timing. Every payment in that schedule is contingent, not on a calendar date, but on a milestone being reached and verified. When a milestone slips, the billing slips with it. In construction, milestones slip often. If a team doesn’t reach that milestone, they can’t bill for it yet. So, it’s about matching percent complete with what they can contractually bill and when. 

According to Rabbet’s 2024 annual industry survey  (Rabbet is an Austin-based construction finance software company that tracks payment trends across the U.S.), 82% of contractors now face payment waits of over 30 days, up from 49% just two years ago. Slow payments cost the U.S. construction industry $280 billion in 2024. Those numbers aren’t just about owners paying late. They’re also a reflection of what happens when the billing trigger never arrives on schedule. 

Why Percent Complete Tracking Breaks Down  

The primary driver of cash flow forecasting failure is because of inaccurate percent complete reporting. Percent complete is the number that determines when you can bill. It also feeds your revenue forecast, your cash flow projection, and your 13-week model. When that number is wrong, or when it’s estimated loosely by project managers who have other priorities, the whole financial picture downstream becomes unreliable. When managers aren’t very good at forecasting their percent complete expectations, that makes it difficult to know when cash is actually coming in, which creates very real forecasting problems. 

I see this pattern with clients across the board. The project team knows the work and they’re tracking labor hours and materials. But translating that activity into an accurate percent complete figure, one that maps to the contractual billing milestone, is a different discipline. It requires coordination between the field and the office, and it requires that the data gets into the system correctly and on time. 

When it doesn’t, the cash flow model breaks down; you’re building a forecast on a number that doesn’t reflect reality, which means the forecast can’t tell you what you desperately need to know: when the cash is coming in. 

This is one of the core reasons how to build a cash flow forecast in construction is a different exercise than in most other industries. The inputs are harder to trust, and the consequences of getting them wrong are immediate. 

The Subcontractor Caveat   

Add subcontractors to the picture and the cash flow challenge becomes more layered. Most subcontractor agreements include pay-when-paid terms, meaning the general contractor isn’t obligated to pay the sub until the owner has paid the GC. That’s a reasonable caveat, one that prevents a contractor from floating cash they haven’t received yet. But the protection comes with a tight window. Most contracts require that subcontractor payment be turned around within seven days of receipt from the owner.  

That seven-day clock creates operational pressure. Before any subcontractor check goes out, you need to verify that the corresponding payment from the owner has landed. That means AR and AP have to move in coordination, and it can NOT be a passive process. The cash flow management discipline required to execute this consistently, across multiple subs on multiple projects, is one of the most underestimated challenges in construction finance. 

The industry data reinforces this. Rabbet’s annual survey found that 95% of general contractors are now floating payments while waiting on developer disbursements. The AGC’s 2025 workforce and operations survey found that 67% of firms had at least one project canceled, postponed, or scaled back in the prior six months — and project disruptions of that kind create payment timing cascades that ripple through every sub on the job. 

What a Good Cash Flow Process Actually Looks Like 

When I onboard a new construction client, one of the first things I put in place is a weekly cash flow meeting. Not monthly. Not quarterly. But weekly—because that’s the cadence construction requires. 

The meeting has two parts. The first half reviews the cash flow model, typically a 13-week rolling forecast that maps projected inflows against scheduled outflows. The second half is where we make decisions: what’s getting paid this week, in what order, and what needs to wait. Therefore, the weekly meeting is about managing the how and the why, so the project stays on track.   

There is a reason I recommend subcontractor payments get reviewed separately from other vendor payments. Before any sub check is approved, we cross-reference with AR to confirm the owner payment has already been received. It’s a manual step, but the stakes of getting it wrong are too high to automate. 

I also track three cash flow metrics as a standing check on whether the forecast is accurate: Days Sales Outstanding (DSO), Days Payable Outstanding (DPO), and Days Inventory Outstanding (DIO). These aren’t vanity metrics. They’re a built-in validation layer — if the DSO or DPO figures are drifting from what the model assumes, that’s an early signal that the balance sheet is going to surprise you. 

The goal isn’t just to know where cash stands today. It’s to have enough forward visibility to make decisions ahead of the problem, not behind it. 

The Revenue Forecasting Side of the Equation 

Revenue forecasting in construction follows the same logic. I build projections from the project pipeline; e.g. what’s been awarded, what’s in negotiation, what the expected start dates look like, and apply margin assumptions against each contract. 

Margins in construction are predictable, and many contractors have minimum threshold margins built into how they price work, so the margin line tends to hold. What doesn’t hold is timing. That’s why I recommend a rolling 12-month historical look to calibrate timing assumptions, accounting for when projects in this client’s portfolio start versus when they were projected to start, and how milestone schedules shift once work is underway. Over time, that historical pattern becomes a reliable input in the forecast. 

The forecast I build at the monthly level is also reconciled with the 13-week cash flow model. I cross-check the ending cash balance in the short-term model against where the monthly forecast says cash should land at period end. When they don’t align, that’s the check and balance that tells me something in the assumptions needs to be revisited. 

What This Means for Your Business 

Unpredictable cash flow despite a healthy pipeline almost always traces back to the timing of your milestone billing, not margins or revenue. The answer is to work with a financial partner who can help you build the financial infrastructure that gives you real-time visibility when cash is coming in. 

That means: 

• Percent complete reporting that’s accurate, timely, and tied directly to billing thresholds in each contract. 
• A structured AP process that coordinates subcontractor payments against verified AR receipts. 
• A 13-week cash flow model that’s reviewed and updated weekly, not filed away after month-end. 
• A monthly revenue forecast that reconciles with the short-term model so the two pictures stay consistent. 

None of these are complicated in concept. In practice, they require discipline, the right process, and someone whose job it is to manage the financial side of the business. And, for most construction companies at the $3M to $100M revenue range, that’s where working with a Virtual CFO changes the picture. The complexity of construction finance isn’t a problem that accounting software can solve. It’s usually a process problem, which requires ongoing financial leadership to manage. 

Learn more about what a Virtual CFO does for construction companies in our overview: Why Construction Companies Hire Virtual CFOs.

Let’s Talk About What’s Keeping You Up at Night 

Milestone billing complexity, subcontractor coordination, and cash timing don’t resolve themselves. The companies that manage them well have built the right processes and have the right financial oversight in place. 

Start with our free guide, The Role of Dynamic Forecasting in Ensuring Business Growth, to see how forecasting supports better business decisions — or if you’re ready to apply this to your business, talk with a Virtual CFO.