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Retentions, WIP and staged payments: the construction cashflow trap
Construction is one of the few sectors where a company can be fully booked, profitable on paper, and still unable to make payroll. The reason is structural, not managerial. The way construction work is priced, certified and paid for builds a long, predictable gap between doing the work and being paid for it — and three mechanisms in particular do most of the damage: retentions, work in progress, and staged payments. This is how the trap is laid, why it bites incorporated contractors and subcontractors hardest, and where short-term business credit does and does not help.
Retentions: money you have earned but cannot touch
A retention is a slice of each payment — commonly around 3–5% — that the client or main contractor holds back as security against defects. Half is typically released at practical completion; the other half only after the defects-liability period ends, which can be twelve months or longer after you have left site. The work is done. The money is earned. It is simply not yours to spend yet.
On a single small job the retained sum is a rounding error. Across a full order book it is not. A subcontractor running several contracts at once can have a meaningful share of a year's margin sitting in other people's bank accounts, drip- released over eighteen months, some of it contested at the end, some of it never recovered because the holder of the retention has itself become insolvent. Retention money is the most profitable revenue you will wait longest to see — and the revenue most likely to evaporate.
Work in progress: the cost you carry before you invoice
Work in progress (WIP) is everything you have already spent on a job that you have not yet been able to bill. Materials bought and fixed. Wages paid to the gang on site. Plant hire running by the week. Under most construction contracts you cannot invoice for that work until it has been measured and certified — and certification runs on the client's calendar, not yours.
So the firm funds the build out of its own pocket first. Suppliers want paying on thirty-day terms. The PAYE bill and pension contributions fall due monthly regardless of whether a single valuation has been certified. The further ahead of your billing your spending runs, the larger the hole — and growth makes it worse, because winning a bigger job means carrying a bigger WIP balance before the first payment ever arrives. This is the precise mechanism behind the grim industry truism that contractors go bust on the way up, not the way down.
Staged payments: the gap between value earned and cash received
Most construction contracts pay in stages: interim valuations at set intervals, a payment-due date, then a final payment date some days after that. Even when everyone behaves and the Construction Act timetable is followed, weeks pass between doing the work and seeing the cash. When the chain misbehaves — a valuation disputed, a pay-less notice served, a main contractor stretching its own suppliers — the gap widens further, and it widens furthest at the bottom of the chain, where the smaller subcontractors sit.
Stack the three mechanisms together and the shape of the trap is clear. Retentions hold back a slice of everything for a year or more. WIP forces you to fund the build before you can bill it. Staged payments delay each bill once it is finally raised. A firm can be winning work, delivering it well, and showing a healthy profit and loss — while its bank balance tells a story of chronic, structural shortage.
Why incorporated contractors feel it most
A limited company carries fixed obligations that do not wait for a certificate. PAYE and pension contributions are due monthly. VAT, even under the domestic reverse charge, still has to be administered and reconciled. Corporation tax falls due on profits the company may not yet have collected in cash. Plant and finance instalments run on their own schedule. None of those creditors care that valuation four has not been certified.
This is exactly the territory a short, sharp business facility is built for: not to fund a loss, but to bridge a timing gap that you can already see on the certificate. The company is the borrower — not the director personally — and at Credicorp there is no personal guarantee, which matters in a sector where directors are routinely asked to put their homes on the line for a cashflow gap that is the contract’s fault, not theirs. Because this is lending to an incorporated business and not to a consumer, it sits outside the consumer-credit regime; our lending-and-regulation page sets out exactly what that does and does not mean.
Using credit without papering over a real problem
Short-term credit is a bridge, not a cure. It earns its place when the cash is genuinely coming — a certified valuation, a retention with a known release date, an agreed final account — and you simply need to cover wages, materials or the PAYE bill until it lands. It is the wrong tool for a job that is loss-making, a client who is not going to pay, or a retention that is being disputed on its merits. Borrowing against money that may never arrive only deepens the hole.
The disciplined approach is to price the timing gap before you need it: know your retention release dates, track WIP against your billing, and forecast the certification calendar so a short bridge is a planned decision rather than a panic on the 25th. The most resilient construction firms are not the ones that never have a cashflow gap — that gap is baked into the sector — they are the ones that see it coming and have a plan to cross it. If a Credicorp facility is part of that plan, the operator’s construction industry page sets out eligibility and pricing, and you can start an application when the timing gap is the only thing standing between earned revenue and cash in the account.