Protecting Construction Cashflow in a High-Risk Market

 

Construction businesses can fail while appearing busy.

A full pipeline may increase revenue, but it can also increase wages, material purchases, subcontractor liabilities and retention exposure before corresponding payments are received.

Cashflow therefore requires active management from the start of a project through to final account and retention release.

This is important for developers, main contractors, subcontractors and suppliers.

Why current risk remains elevated

The Companies Office recorded 710 liquidator appointments during the first quarter of 2026.

That was 4.9% higher than the 677 appointments recorded in the first quarter of 2025. It was also above the 629 appointments recorded in the first quarter of 2024.

The figures apply across the economy, but they provide a clear warning. Businesses should not assume that a customer or contractor is financially secure simply because it has current projects.

Construction insolvency can affect entire supply chains. When one contractor fails, subcontractors may lose unpaid claims, suppliers may stop deliveries and clients may need to appoint replacement teams.

Complete financial checks

Before entering a major contract, businesses should check the other party.

Useful information can include:

• Companies Register status.
• Directors and shareholders.
• Recent financial statements where available.
• Credit checks.
• Trade references.
• Previous payment performance.
• Existing disputes or legal claims.
• Evidence of project finance.

Checks should match the size and duration of the risk.

A commercial construction company accepting a small, short-term job may require less information than one entering a multimillion-dollar project lasting several years.

Financial checks should also continue during the project. Late payments, unexplained management changes and declining site activity can be warning signs.

Understand the contract

Cashflow problems often begin with contract terms that were not properly reviewed.

The contract should clearly state:

• Payment claim dates.
• Assessment periods.
• Payment due dates.
• Retention percentages.
• Security requirements.
• Variation procedures.
• Notice requirements.
• Suspension rights.
• Final-account processes.

Businesses should not rely on informal expectations where the written contract sets different requirements.

Site teams need to understand the commercial rules. A variation recorded only in a conversation may be difficult to recover later.

Submit complete payment claims

A payment claim should be clear, accurate and supported.

It should identify the work completed, relevant contract items, approved variations, materials on site where claimable and any required evidence.

Claims submitted late or without supporting records are easier to dispute.

The project team should prepare progress records throughout the month rather than reconstructing them immediately before the claim date.

For multi-unit construction, work should be tracked by block, unit or stage where the contract requires that level of detail.

Control variations

Unapproved variation work is one of the largest cashflow risks in construction.

Site teams may proceed because the change appears urgent or because they want to maintain the programme.

The contractor then carries the labour and material cost while price and entitlement remain unresolved.

A practical variation process should include:

1. Written instruction or notification.
2. Description of the scope change.
3. Estimate of cost and programme impact.
4. Approval where possible.
5. Separate tracking of labour and materials.
6. Inclusion in the next payment claim.

Emergency work may need to proceed before formal agreement, but records should still be created immediately.

Watch retentions

Retentions reduce current cash receipts and can remain outstanding long after physical work is complete.

Businesses should maintain a retention register showing:

• Amount withheld.
• Contract basis.
• Expected release date.
• Defects obligations.
• Invoice or claim requirements.
• Actual payment date.

Retentions should not disappear into aged receivables.

The contractor should prepare completion and defect records early so administrative delays do not hold up release.

Avoid overtrading

Growth can create a funding gap.

A commercial construction company that adds several projects may need to pay additional wages and suppliers before receiving the first progress payments.

Even profitable work can become unsustainable when too much starts at once.

Businesses should prepare rolling cashflow forecasts that account for realistic payment timing rather than invoice dates alone.

The forecast should include tax, leave, insurance, loan payments and overheads as well as direct project costs.

Manage supplier exposure

Supplier accounts can create substantial short-term credit, but they are not unlimited finance.

Late payment may result in stopped supply, reduced credit limits or cash-before-delivery terms.

Contractors should reconcile supplier invoices against agreed rates and purchase orders. Errors should be addressed promptly rather than left until the project ends.

Where materials are purchased specifically for one project, the payment claim should include them when the contract allows.

Price risk properly

A low-margin project can consume management time and cash without producing a reasonable return.

Pricing should allow for supervision, temporary works, compliance, programme risk and defects.

Contractors should not assume that every uncertainty will become a recoverable variation.

The construction market may be improving, but cost pressure remains. Stats NZ reported continued increases in both residential and non-residential construction prices during the March 2026 quarter.

Clients also benefit from strong contractor cashflow

Clients may believe that contractor cashflow is not their concern. That view can be costly.

A financially distressed contractor may reduce labour, delay suppliers, lose key staff or fail before completion.

Fair payment processes support reliable delivery.

Clients should assess claims promptly, explain deductions and approve valid variations without unnecessary delay.

They should also avoid appointing a contractor at a price that appears commercially impossible.

Building a resilient commercial construction business

Strong cashflow management depends on accurate information and consistent action.

The finance team, quantity surveyor, project manager and site manager should work from the same records.

Commercial issues should be escalated early rather than hidden until the project is complete.

A successful commercial construction company balances operational delivery with financial discipline.

Savannah Construction delivers commercial and multi-unit construction work across the Waikato. Information about its services and project experience can be found at www.savannahconstruction.co.nz.