How to Improve Working Capital for Construction Contractors
Working capital is current assets minus current liabilities. For contractors, it is one of the main numbers a surety uses to set bonding capacity. Sureties often adjust it, for example by excluding old receivables or related-party balances. Improving working capital means both building it and making sure it holds up under that review.
8 Ways Contractors Can Improve Working Capital
Bill on time, every month. Late pay apps create underbillings and slow cash.
Collect retainage. Track retainage by job and push for release at substantial completion.
Clean up old receivables. Sureties may exclude receivables older than 90 days. Collect them or write them off.
Retain earnings. Distributions reduce working capital. Plan them with your bond program in mind.
Move long-term debt off current liabilities. Where it makes sense, term out short-term borrowing. Talk to your bank and CPA first.
Avoid using cash for equipment. Financing equipment can protect working capital. Weigh the cost first.
Settle related-party balances. Loans to owners or affiliates are often excluded by sureties.
Watch profit fade. Jobs that lose margin drain working capital. A monthly WIP report catches fade early.
Working Capital and Bonding Capacity
Many sureties set aggregate bonding capacity at a multiple of adjusted working capital, often in the range of 10 to 20 times. Each surety sets its own approach, so ask your agent how yours calculates it. For a deeper look, read The Role of Working Capital in Surety Bond Approval.
How SuretyCFO Helps
SuretyCFO forecasts working capital, tracks it monthly, and shows commercial contractors with $5M to $50M in revenue what to change before asking for a larger bond program. We are based in Old Bethpage, New York, and work virtually with contractors nationwide.
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