The Working Capital Problem Every Sub Faces
Subcontractors operate in a world where they pay first and get paid later — sometimes much later. Materials must be purchased, labor must be deployed, and overhead keeps running regardless of when the GC sends the check. This gap between cash out and cash in is the working capital problem.
The average subcontractor waits more than 50 days to get paid after submitting a pay application. Most supplier terms expire in 30 days. That 20-plus day gap has to come from somewhere — a line of credit, credit cards, cash reserves, or dedicated material financing. Each option has a real cost, and most subcontractors don't account for it in their bids.
The result: subcontractors are effectively lending money to GCs and owners at 0% interest while paying real rates on the working capital they need to bridge the gap. This toolkit shows you how to stop doing that.
Know Your Numbers
You can't manage what you don't measure. Before building a working capital strategy, you need to know your baseline numbers. These are the key metrics every subcontractor should track.
Days Sales Outstanding (DSO)
The average number of days it takes to collect payment after a pay application is submitted. Target: under 45 days.
Days Payable Outstanding (DPO)
How long you take to pay your own suppliers. Maximizing DPO while minimizing DSO is the core working capital optimization.
Working Capital Ratio
Current assets divided by current liabilities. A ratio below 1.2 is a warning sign in construction.
Cash Conversion Cycle
The time between paying for materials and receiving payment for finished work. Every day here has a real dollar cost.
Financing Cost as % of Revenue
The total cost of all working capital sources divided by revenue. This number belongs in every bid.
Available Credit Utilization
How much of your available credit lines and financing capacity you're using. Headroom matters when a big job hits.
Your Financing Options — and When to Use Each
Most subcontractors rely on one or two financing sources. The strongest ones maintain a diversified toolkit. Here's how to think about each option.
Supplier Terms
2–4% per month (baked in)Best for: Routine material purchases with predictable payment timelines
Watch out: Term lengths rarely match your DSO. Negotiate net-60 or net-90 when possible.
Line of Credit
10–15% APRBest for: Payroll, overhead, and bridging short-term cash flow gaps
Watch out: Banks tighten credit in economic uncertainty. Don't rely on it as your only tool.
Material Financing (e.g., Billd)
2–4% per monthBest for: Large material purchases on projects with long payment cycles
Watch out: Terms are tied to the project — get paid, pay the financing. Aligns perfectly with construction cash flow.
Credit Cards
18–36% APRBest for: Small purchases, emergencies, earning rewards on spend you'd make anyway
Watch out: Expensive if balances carry over. Not a working capital strategy.
Invoice Factoring
2–5% of invoice valueBest for: Immediate cash against approved receivables when you can't wait
Watch out: Can signal financial distress to GCs if disclosed. Not ideal for long-term use.
Build Financing Costs Into Every Bid
According to Billd's annual market research, nearly half of subcontractors do not include the cost of working capital in their bids. This means they're absorbing a real financial cost on every project — a cost that directly reduces profit margin.
The fix is straightforward. On a $500,000 materials-heavy project with a 54-day payment cycle and material financing at 3% per month, the financing cost is approximately $25,000. If that's not in the bid, it comes out of your profit.
Simple Formula
Material cost × monthly financing rate × (DSO ÷ 30)
= Your working capital cost for that project
$500,000 × 3% × (54 ÷ 30) = $27,000
Add this to your overhead line in every bid. It's money you're spending whether you account for it or not.
Worried about losing bids? The subcontractors who account for financing costs and win on margin are outperforming those who underbid to win and squeeze margin. Competing on price alone is a race to the bottom. Download the full toolkit for the complete bid worksheet.
Red Flags to Watch Before a Crisis Hits
Cash flow crises don't appear overnight. These warning signs typically appear weeks or months before a real problem emerges — if you know what to look for.
DSO is creeping up project-by-project but you haven't changed your bid assumptions
You're maxing out supplier terms and credit card limits before mid-project
You're winning more bids than usual but cash feels tighter than expected
Payroll is getting close to the wire more than once a quarter
You're delaying your own supplier payments to bridge GC delays
Your working capital ratio is below 1.2 and trending down
You turned down a project because you didn't have the cash to start it