Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How a Contractor Used Progress Billing to Fix Cash Flow
Transcript
- Lucas: So a contractor we spoke with in Austin — let's call him Mark — was doing about $8 million a year in commercial build-outs. His biggest problem wasn't finding work. It was waiting to get paid. Luna: Standard contractor complaint, right? 'I did the work, now I wait 60 days.' Lucas: Worse than that. Mark was on milestone billing — you finish the foundation, you invoice. You finish the framing, you invoice. The problem is, on a $2 million project, a milestone might be $400,000, and the general contractor takes 45 to 75 days to approve and cut the check. Luna: So he's essentially financing the GC's project out of his own pocket. Lucas: Exactly. And he had three projects running simultaneously. His line of credit was maxed out at $350,000, and he was paying 8.5 percent interest just to cover payroll while he waited. That's about $30,000 a year in dead money. Luna: What did he switch to? Lucas: Progress billing — but not the vague kind where you invoice '25 percent complete.' He moved to monthly progress billing with certified completion percentages. So every month, he submits a detailed breakdown: labor hours, materials delivered, work completed, photos, and a signed certification from his project superintendent. Then the owner's representative signs off on the percentage complete. Luna: That sounds like more paperwork. Did it slow him down? Lucas: He says the first two months were brutal. He had to retrain his office manager and get his superintendents to take photos daily. But by month three, the system was running. And here's the key number: his average receivables days dropped from 68 days to 31 days within six months. Luna: So he cut his wait time in half. Lucas: More than half. And he didn't just speed up payment — he eliminated the surprise of a disputed invoice. Because every month, the owner is signing off on progress. There's no argument at the end about whether the work was done. Luna: I can see why owners would resist that, though. It takes more of their time. Lucas: That's the biggest hurdle. Mark told me he lost one potential client because the owner didn't want to review monthly certifications. But he also said the clients who agreed to it ended up preferring it — because they had better visibility into the project's progress and cost. Luna: And I imagine it helps with lien waivers too, right? Because if you're billing monthly for certified work, you can issue a partial lien waiver each month. Lucas: That's exactly what he did. He attached a conditional partial lien waiver with every progress invoice. That gave the owner confidence that they weren't going to get hit with a lien for work already paid for. And it made the approval process smoother because the owner's bank often required those waivers for funding draws. Luna: So it's not just about getting paid faster — it's about reducing risk on both sides. Lucas: Right. And there's a tooling angle here too. Mark started using a software called Procore for the documentation, but there are cheaper options like BuilderTrend or even a structured Google Drive folder with a checklist. The key is consistency. Luna: What about the negotiation? How did he get his existing clients to agree to the change? Lucas: He didn't force it on existing contracts. He implemented the new system for new projects. And he framed it as a win-win: 'I can offer you a slightly lower bid because I won't need to factor in the cost of carrying your receivables.' He estimated that the old system added about 2 percent to his overhead because of the interest and the time spent chasing payments. Luna: So he passed some of that savings on? Lucas: Exactly. He offered a 1 percent discount on the total contract if the owner agreed to monthly progress billing with certified completion. That's a rounding error for the owner, but for Mark, it meant predictable cash flow and no more 8.5 percent interest on his line of credit. Luna: I have a friend who runs a small electrical contracting firm, and she tried something similar but it backfired. She sent monthly invoices but her documentation was sloppy — no photos, no certification. The owner disputed the percentages, and it turned into a three-month argument. Lucas: That's the cautionary tale. Progress billing without good documentation is worse than milestone billing, because you're creating more touchpoints for conflict. You have to be disciplined about the paperwork. Mark's superintendents use a standard template with date-stamped photos and a checklist of completed tasks. It takes 15 minutes a day. Luna: So the lesson is: it works if you commit to the process. Lucas: Yeah, and it's not just for contractors. Any business that does long-term projects — IT consultants, architects, even some freelancers — can use progress billing to smooth cash flow. The principle is the same: break the work into smaller, verifiable chunks, invoice monthly, and get sign-off at each step. Luna: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to keep this kind of practical conversation going. Luna: Exactly. So back to Mark — he's now thinking about automating the process further with something like blockchain-based smart contracts that release payment automatically when a certification is uploaded. Lucas: That's the frontier. There are a few pilot programs in commercial construction where a project's BIM model is linked to a smart contract on Ethereum. When the model shows a certain percentage of work complete, the contract automatically releases funds from an escrow account. But that's years away from mainstream adoption. Luna: Still, the core principle is accessible now: bill more often, document thoroughly, and tie payment to verified progress. Lucas: Exactly. And the numbers work. Mark's line of credit is now down to $50,000 — he barely uses it. He saved about $25,000 in interest in the first year, and his office manager spends less time on collections. That's a concrete win. Luna: And the clients are happier too, because they have real-time cost visibility. Lucas: Right. So if you're sitting on long receivables and you do project-based work, consider whether progress billing could work for you. Start with one client, get the system tight, then roll it out. Luna: Good advice. Thanks, Lucas. Lucas: Thanks, Luna. Talk next time.