Maintaining Cash Flow
Progress Billing, Retainage, Prompt Payment, Collections and Working Capital
SEC Beginners' Guide to Financial Statements; IRS Publication 538; F.S. 715.12, 713.06, 713.08, 255.05 (Online Sunshine); FAR 52.232-5 (acquisition.gov) — all read 2026-09-19 · Reviewed 2026-09-21
"Maintaining Cash Flow" is 3–5 questions on the Business exam. Profit is an opinion; cash is a fact. A contractor finances every job for weeks before the first pay application is paid, and the exam tests the tools that shorten that gap: progress billing, retainage, the prompt-payment law, lien and bond deadlines used as collection tools, and the numbers that measure the cushion — working capital and the cash flow statement.
1. Why profitable contractors run out of cash
- Costs are paid weekly (payroll, burden) and monthly (suppliers); revenue is billed monthly and collected 30–60 days later, less retainage. The difference is financed by working capital (current assets − current liabilities) or borrowed.
- Depreciation is an expense that uses no cash; a receivable is revenue that has not arrived; a new truck is cash out that never touches the income statement. The cash flow statement (operating / investing / financing activities) shows the movement the income statement hides.
- Under the cash method income is recorded when received; under the accrual method when earned — an accrual income statement can show a profit while the bank account shrinks.
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