THE CONSTRUCTION CASH CONVERSION CYCLE.
The cash conversion cycle measures how long it takes for a dollar of cost spent to come back as a dollar of cash received. For commercial subcontractors the realistic cycle is 60 to 110 days, not the 30 to 45 days most owners assume. The math is days cash conversion, typically 90 to 155 days from work performed to ACH receipt once pay app timing and retention are counted, minus days payable outstanding, typically 30 to 45 on vendor terms. A 75 day cash conversion cycle means every dollar of work performed today turns into cash 75 days from now. The bank account knows this. The P&L doesn't.
Subs who never calculate their own cycle run the business against optimistic cash assumptions, and those assumptions hold right up until growth stretches the cycle further. That's the part that catches people out. The cycle bridge requirement scales with revenue while profit builds slowly, so the busiest year is the year the working capital runs short. Once the number is measured every month, the same growth decision gets made against real timing instead of a guess about how fast money comes back. The formula is simple enough to run today: days cash conversion minus days payable outstanding.
WHAT IT MEANS.
The cash conversion cycle is the time between cash going out for project costs and cash coming back from project receivables.
Days cash conversion is the average elapsed time from when work is performed to when cash reaches the operating account. Days payable outstanding is the average elapsed time from when a cost is incurred to when the matching payable is settled. The cycle is the first number minus the second.
For a healthy commercial sub, days cash conversion typically runs 90 to 155 days, which is a 60 to 90 day pay app cycle with retention compounding on top. Days payable outstanding typically runs 30 to 45 days, meaning standard vendor net 30 plus a few days of slip. That leaves a 60 to 110 day cash conversion cycle, and it has to be financed somewhere.
THE THREE PIECES OF THE CYCLE.
Work to invoice lag
Work performed mid month bills on the following month's pay app, submitted 5 to 10 days into the next month. Average lag from work performance to invoice submission runs 18 to 28 days. Most subs accept that as a fixed constraint, but tightening the billing cadence to weekly or bi-weekly pay app structures where the contract allows it can cut the lag to 8 to 15 days. That pulls 10 to 15 days out of the cycle on its own.
Invoice to cash lag
This is the stretch from pay app submission to ACH receipt in the operating account. For commercial GC clients on private commercial work it's 45 to 75 days standard, and for public sector clients it's 60 to 120 days standard. Closeout invoices can take 120 days or more. This is the largest single component of the cycle and most subs treat it as fixed, but tighter pay app documentation, prompt pay statute enforcement on public work, and proactive AR management can pull 10 to 20 days out per project.
Retention hold cycle
5 to 10% of every pay app is held until substantial completion of the entire project, which is often months past the completion of your own scope. For a sub whose work finishes in month 8 of a 14 month project, retention sits another 6 to 8 months past the last billable activity. Averaged across active projects, retention extends the effective cash conversion cycle by 20 to 40 days beyond the basic pay app timing.
WHAT IT LOOKS LIKE IN DOLLARS.
Take a commercial electrical sub at $5M annual revenue, mixed across 60% private commercial GC work and 40% public sector work. Average pay app cycle 65 days, average retention hold 30 days as an effective average across active projects, and average work to invoice lag 22 days. Days cash conversion is 22 plus 65 plus 30, which is 117 days. Vendor terms run mostly net 30 with some net 45 on specialty equipment, so average DPO is 38 days, and the cash conversion cycle is 117 minus 38, which is 79 days.
Every dollar of project cost spent today won't come back as cash for 79 days on average. To support $5M of annual revenue at that cycle length, the business needs roughly $1.1M of working capital tied up at any moment just to bridge the cycle. Growing to $7M would require another $440K of working capital for the bridge alone, before any other growth investment. That's why profitable contractors hit cash crises during growth.
A 79 day cycle compressed to 55 days through systematic use of the tactics below reduces the working capital requirement by roughly 30%. On the $5M sub above, that's $330K of operating cash freed up. Revenue, margin, and overhead all stay where they were.
HOW THE CYCLE GETS SHORTER.
Weekly or bi-weekly pay app structures where contracts allow it, plus faster T&M invoicing within 5 days of work completion. Nothing about the work changes, only the day the paperwork goes out. This alone can pull 10 to 15 days from the cycle.
Proper pay app documentation means complete on first submission, with no kickback for missing items. Prompt pay statute enforcement on public work and stored materials provisions on gear heavy scopes do the rest. Together they can pull 10 to 20 days per project.
Track retention release dates by project, follow up at substantial completion, and push for early release on completed scopes where contracts allow it. Retention is the piece nobody owns, which is why it sits. Working it can pull 15 to 30 days out of the retention component.
Negotiate net 45 or net 60 with major suppliers in exchange for committed volume, and schedule payments with the cycle in view. Paying late isn't the same thing as holding longer terms, and suppliers can tell the difference. Done properly this extends DPO by 10 to 15 days.
Real mobilization costs get recovered in weeks 1 through 4 instead of absorbed into working capital. That reduces the effective cash shortfall on every new project. It gets negotiated into the SOV before signing, because after signing it's a favor rather than a term.
The CFOS framework treats the cash conversion cycle as a managed number rather than a fixed constraint. Every active project has cycle data tracked: actual days work to invoice, actual days invoice to cash, retention release schedule, and vendor terms applied. The aggregate cycle gets reported monthly alongside the financial statements, so when the cycle creeps longer because a new client pays slower or a project enters retention hold, the change becomes visible immediately and the working capital effect gets modeled in the 13 week cash forecast. Growth decisions then get made against real cycle data instead of assumed cash availability.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
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Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
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Every job shows its margin while it's still running.
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