# 14.10, Cashflow and pricing: why a profitable job can still break you
A job can show a paper profit and still leave you skint if the money comes in late, in dribs and drabs, or after you've already paid everyone else. Cashflow is what keeps you trading, not "profit on the spreadsheet".
How bad cashflow hits trades in the UK
Construction is one of the worst sectors in the UK for business failures, and late payments are a big part of that.
- Recent data shows construction made up around 15–16% of all insolvencies in England and Wales in late 2025, with nearly 4,000 construction firms going under in the 12 months to November. A large chunk of those are specialist contractors and small firms – exactly the people living job‑to‑job on cashflow.
- Wider small business reports show UK SMEs are owed tens of billions of pounds in late invoices, with an average of around £20k+ outstanding per small business and more than 60% of businesses waiting on overdue payments at any time.
- Trade and legal commentary is blunt: late payment and long payment terms are a major driver of construction insolvencies, especially for subbies funding labour and materials upfront.
So "we made 15% on the job" doesn't help if you don't see the cash for 90 days, or never.
Typical payment cycles: domestic vs commercial
Domestic (homeowners)
You've got more control here if you set things up properly.
- Deposits: On bigger domestic jobs (kitchens, bathrooms, extensions) it's normal and sensible to take a deposit of 20–40% to cover initial materials and hold the booking.
- Stage payments: For jobs running more than a few days, you should be using staged payments – e.g. deposit, mid‑job milestone, and balance on completion.
- Final payment: Ideally on completion or within 7–14 days of your final invoice for domestic work, not 30/60/90 days. Business‑advice guides for small firms recommend short terms (e.g. 7–14 days) and clear late‑payment wording.
In reality, a lot of one‑man bands still do "no deposit, pay me at the end" – which is how you end up funding their project out of your own pocket.
Commercial (contractors/developers)
Here, the system is set up to drag payments out unless the law forces it to behave.
- Standard terms: 30‑day terms are common in theory, but 45, 60 or even 90 days have been routine on many construction contracts.
- New rules emerging: Government late‑payment reforms are pushing towards a maximum 60‑day cap, with plans to ratchet that down further and crack down on large firms that pay late. But you still have to survive 30–60 days after the invoice – and that's from the point it's approved.
- Retentions: It's common for 3–5% of the contract value to be held back as retention, released in two stages – half at practical completion, half at the end of the defects period (6–12 months later). That's your profit locked up for a year or more.
- Delays and disputes: Legal commentary points out that disputes, "verification" delays, and upstream insolvencies all make these lags worse.
So on commercial work, you're often paying labour, materials and overheads weeks or months before the money comes back in.
Why a profitable job can still break you
Even if the spreadsheet says "nice margin", cashflow can kill you when:
You pay out before you get paid in You typically buy materials up front or on 30‑day merchant credit, and pay wages/your own time weekly. If your customer pays you 30–60 days after completion, you're bankrolling the job.
Retentions swallow your profit On commercial jobs, that 3–5% retention is often your net profit. If it's withheld, delayed, or lost because the main contractor goes under, your "profitable job" becomes break‑even or a loss.
Late payments stack up When you've got several jobs all waiting on slow payers, the numbers add up fast. UK small‑business data shows average outstanding invoices per business around £20,000+, which is more than enough to sink a tiny firm if the bank stops playing ball.
Fixed costs don't wait Van, fuel, insurance, rent, phone, tools, tax – those go out every month regardless. If two or three customers drag their heels at the same time, you can be "busy and profitable" on paper but unable to pay the merchant.
Cashflow is about timing: when money leaves vs when it lands. Get the timing wrong and even good jobs hurt you.
Practical cashflow tips for UK trades
You can't control everything, but you can stack the deck.
1. Fix your payment structure
Domestic:
- Always take a deposit on jobs over a certain size (e.g. anything over £500 or anything involving ordering non‑returnable materials).
- Use stage payments on jobs longer than a week – don't wait for one big chunk at the end.
- Put payment terms (e.g. 7 or 14 days) on every quote and invoice, plus a note about late‑payment charges in line with UK late payment law.
Commercial:
- Check the payment terms before you agree the job – if it's 60–90 days plus retention and you've got no buffer, think very hard.
- Align your own subcontractor/supplier terms as far as you can with your incoming cash (e.g. 30‑day merchant accounts if you're on 30‑day client terms).
2. Watch your WIP (work in progress)
A lot of firms go under because of uncontrolled WIP – too many part‑finished, unpaid jobs at once.
- Don't let lots of small unpaid balances build up while you start new work.
- Finish, invoice, and chase systematically: day 1 reminder, day 7 call, day 14 formal letter if needed – business advisers suggest having a clear step‑by‑step chase process.
3. Be choosy about who you work for
- If a customer or contractor has a reputation for slow paying, price that risk in or walk away.
- Government guidance on payment practices reporting lets you check how fast large businesses pay their invoices – use it if you're signing up with a big outfit.
4. Keep overheads realistic and build a buffer
- Know your fixed monthly costs (van, insurance, phone, software, etc.) and make sure your pricing (see 14.2) actually covers them with something left over.
- Aim to build a cash buffer – even a month or two of overheads in the bank makes late payments much less terrifying.
5. Use the law when you have to
- UK late‑payment rules give you the right to charge statutory interest and fixed fees on overdue business‑to‑business invoices beyond agreed terms.
- You don't have to go nuclear every time, but putting the wording on your terms and using it for persistent offenders helps set boundaries.
What to do next
- Read: 1.14 – Cashflow basics for small construction businesses
- Read: 1.15 – The Late Payment Act: your secret weapon
- Read: 1.5 – Retentions: what they can hold (and how to get your money back)
- Read: 14.2 – How to price your first job without underselling yourself (make sure your rate covers your fixed costs)
- Read: 14.6 – Pricing domestic vs commercial (understand the payment cycle before you commit)
- Download: Cashflow forecast – 12 week template
- Download: Cashflow forecast – 6 month template
- Download: Payment schedule and deposit terms template
- Use: Late Payment Calculator (work out exactly what you're owed on overdue invoices)
- Use: Retention Calculator (see when your retention is due and how much is held)
Sources (UK)
- Insolvency Service / GOV.UK – construction insolvency data; ~4,000 construction firms insolvent in 12 months to November 2025; construction accounting for 15–16% of all insolvencies.
- FSB / BEIS late payment data – UK SMEs owed tens of billions in late invoices; average £20k+ outstanding per small business.
- Build UK / Construction Leadership Council – late payment as a driver of construction insolvencies; payment reform proposals.
- Government late‑payment reform proposals – 60‑day maximum payment term cap; payment practices reporting.
- Late Payment of Commercial Debts (Interest) Act 1998 – statutory interest and compensation rights on overdue B2B invoices.
- Housing Grants, Construction and Regeneration Act 1996 – framework for construction payment terms, retentions and adjudication.
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