A contractor can have a reputation for completing large, complex projects on time and on budget. But sustaining long-term financial success takes more than skilled crews and strong construction management. It also depends on steady, predictable cash flow. 

Staying financially agile has become more challenging in today’s unpredictable environment. Rising material costs, supply chain volatility and economic uncertainty mean that contractors must be strategic about when and how they make and receive payments. Those who hold onto their money longer, while meeting their financial obligations to suppliers, hold a clear advantage. 

Doing so requires a combination of negotiation, technology and strategic financial planning. Contractors who master this balancing act are better positioned to not only maintain adequate liquidity but also unlock opportunities to invest cash before it leaves their accounts. 

Let’s look at a few ways to do both. 

Improving payment terms. One of the most straightforward ways to extend cash flow is by negotiating better payment terms. Historically, that has been accomplished by collaborating with suppliers and subcontractors who agree to extend due dates in exchange for long-term contracts or other benefits. (Conversely, some offer discounts for early payment, which can benefit both parties in some circumstances.) 

If increasing DPO (Days Payable Outstanding) is the goal, there are other tools that contractors are now wise to consider. 

Expanding payment options. It’s not just WHEN a bill is paid, but HOW it’s paid that matters. Contractors who still use paper checks to settle invoices are paying a premium price while creating avoidable cash flow bottlenecks. Digital payments methods can reduce processing costs, improve cash flow and strengthen supplier relationships by offering faster, more reliable payments. 

Replacing checks with one-time-use virtual cards, for example, allows contractors to control the timing of cash outflows. Payees receive funds immediately, while the payer has until the due date to settle the card bill, offering additional days of float before the funds are withdrawn from their account. Paying with a card—whether digital or plastic—offers another advantage. Contractors can also earn a revenue share with every payment, turning payments into a new revenue source. 

Another alternative, ACH (Automated Clearing House), allows payments to be scheduled for the last possible moment while still meeting contractual obligations. For contractors, these electronic fund transfers are faster, cheaper and easier to track than paper checks, helping improve cash flow and reduce admin time. For subs and suppliers, ACH means quicker, more reliable payments made straight to their accounts, with less risk of delays or fraud. 

Integrating the payments process into accounting systems. Instead of relying on a stand-alone accounts payable function, many contractors are now integrating payments processing directly into their accounting systems. By automating payments and integrating them with existing accounting systems, contractors can reduce errors, eliminate late fees and ensure that payments are made at the most advantageous times. 

Digitizing incoming invoices and integrating them into the accounting workflow also cuts paper usage, postage and labor, reducing AP processing costs compared to paper-based manual systems. Additionally, using a payment hub also makes it easier to pay contractors and suppliers using their preferred payment method (virtual card, ACH, check or wire) while mitigating risks tied to manual data entry and the transfer of sensitive payment information between disconnected systems. 

Shortening receivables time. Automation can play a crucial role in accelerating receivables as well. It can be especially helpful on large commercial and public projects, where payment timelines often extend to 90 days or more due to approval chains, lien waivers and funding cycles. That is double the 45 DSO (Days Sale Outstanding) that construction cost accountants typically cite as the threshold for maintaining healthy cash flow and credit management.

Digital invoicing platforms reduce the risk of human error and ensure that invoices are sent promptly, with built-in reminders for clients who are slow to pay. Automated payments portals allow customers to make payments online, eliminating delays caused by mailed checks or manual processing. 

In addition, insights on everything from payer performance to credit risk management, as well as predictive analytics on payment projections and collections forecasting, are possible with the help of AI tools. All can contribute to a builder’s ability to understand cash flow risks and plan future business spending accordingly. 

Outsourcing payments. Managing payments in-house can be time-consuming and costly, especially for larger contractors with high transaction volumes. Outsourcing the actual payments process to a trusted source can reduce administrative overhead and improve efficiency. 

At Commerce Bank, for example, contractors simply send a payment data file specifying each supplier’s preferred payment method. The bank manages the rest—handling disbursements while also minimizing exposure to fraud, compliance monitoring and detailed analytics that help contractors refine their cash flow strategies. This allows builders to scale their operations using their existing AP staff, who can now focus on higher-value, strategic tasks. 

Making idle cash work. Keeping money in the bank isn’t just about delaying payments. It’s about making that cash work before it has to be disbursed. Contractors with strong cash reserves can invest short-term funds in interest-bearing accounts or low-risk financial instruments to generate returns on idle cash. 

Some contractors take an even more proactive approach by using excess cash for strategic reinvestment. Purchasing materials in bulk during price dips, locking in favorable supplier contracts or taking advantage of early payment discounts can yield financial benefits that outweigh the interest earned on deposits. The key is to balance liquidity with opportunity, ensuring that cash remains accessible while still being put to work. 

A cash flow strategy for long-term success. Contractors that take a proactive approach to cash flow management will be in a stronger position to weather economic uncertainties and maintain financial stability. In an industry where cash is king, those who manage it wisely will have the power to grow, invest and stay ahead. 

No matter the challenges your business faces—and the questions that come with them—you don’t have to face them alone. At Commerce Bank, we’ve been helping businesses of all sizes find the solutions they need since 1865. Because nothing matters more to us than your success. Learn more at commercebank.com/SolutionsThatMatter.

CommercePayments® solutions are provided by Commerce Bank.