Surviving Progress Billing: Cash Flow for GC-Paid Contractors

Materials up front, payroll weekly, and a general contractor who pays in 75 days. Here is how subcontractors finance the gap without stalling the job.

The Subcontractor Cash Curve

A commercial subcontractor mobilizes a crew, buys materials, and works for 30 days before submitting a pay application. The general contractor reviews it, includes it in their own draw to the owner, and the money eventually arrives 45 to 75 days after the work was performed. Meanwhile, payroll ran every week and the supplier wanted payment in 30 days.

On a $600,000 commercial roofing job, that gap can represent $200,000 or more of cash you have advanced into a project before the first dollar comes back. Take two of those jobs simultaneously and a profitable contractor is suddenly unable to make payroll, not because the business is failing but because it is succeeding faster than its balance sheet can carry.

Retainage compounds it. A 10% holdback on a $600,000 contract means $60,000 sitting in someone else’s account until final completion and lien releases, sometimes a year after your crew left the site. That retainage is often the entire profit on the job, which means many contractors work all year and only realize their margin at the very end.

Choosing Between a Line of Credit and Factoring

A revolving business line of credit is the cheaper option and the right first choice for contractors with two or more years of clean financials and reasonable debt service coverage. Priced at prime plus a spread, sized to roughly 30 to 60 days of operating expenses, and costing nothing when undrawn, it handles routine timing gaps efficiently.

Accounts receivable factoring becomes the answer when the line is not enough or not available. Factoring advances 80% to 90% of an approved invoice within a day or two and underwrites the general contractor’s credit rather than yours, which is why fast-growing or younger contractors often qualify for a factoring facility well beyond what a bank line would offer. Fees typically run 1% to 3% per invoice cycle.

In construction, factoring has a specific complication: progress billing. Funders will generally advance against a pay application only once the GC has approved the milestone, and they will usually exclude retainage from the borrowing base entirely. Understand exactly what portion of your aging is eligible before you size the facility, because the gap between total receivables and eligible receivables can be 20% or more.

Materials, Suppliers, and Purchase Order Financing

Material cost spikes have turned a manageable problem into an acute one for many trades. A roofing contractor bidding a job three months out and buying materials at delivery can watch margin evaporate between the bid and the purchase. Having capital available to buy materials early, when the price is locked, is now a competitive advantage rather than a convenience.

Purchase order financing is the specialized tool when a single large order requires supplier payment before you can perform. The funder pays your supplier directly against a confirmed order or contract, and repayment comes from the resulting invoice. It is more expensive than a line of credit and is best reserved for transactions that are too large for your existing facilities but too profitable to decline.

Do not overlook supplier terms as a financing source. Established relationships with material suppliers often support net-45 or net-60 terms with volume, which is effectively free capital. Negotiating those terms costs nothing but a conversation and a payment history, and every day of supplier terms is a day you do not need to borrow.

Operational Habits That Shrink the Gap

Financing manages the gap; discipline shrinks it. Bill on the first day the pay application window opens, not whenever the office catches up. A single week of billing delay is a week of borrowing cost on every open job, and across a year that number is real money. Contractors who submit pay apps late routinely finance their own administrative sloppiness.

Protect your lien rights religiously. Preliminary notices, deadlines for filing, and proper lien releases vary by state and are unforgiving. A contractor with valid lien rights collects faster and settles disputes on better terms, and factoring funders will advance more comfortably when your lien position is intact.

Finally, track job-level profitability in near real time rather than at project close. Most contractors who fail do so on a job they thought was profitable. A weekly WIP review comparing costs to date against percentage complete catches the problem while you can still change crews, renegotiate a change order, or slow the burn. Angel Funding Group’s accounting support can help implement the reporting cadence that makes this routine.