Previously: Part 2 - How to Price Your Work
The brutal truth:
of small business failures are caused by poor cash flow management, not lack of profit.
Source: U.S. Bank study on small business failures
You can be profitable on paper and still go bust. It's the cruel paradox of running a trade business: you've got £50,000 worth of work on the books, but you can't afford to fill up the van.
Cash flow killed more contractors in 2024 than bad reviews, tough competition, or dodgy customers combined. And here's the thing—most of them saw it coming. They just didn't know what to do about it.
This guide will show you exactly how to manage cash flow like the contractors who survive (and thrive) through economic downturns, late-paying customers, and expensive growth periods.
What Actually Is Cash Flow? (It's Not Profit)
Let's clear this up immediately, because too many contractors confuse the two:
| Profit | Cash Flow |
|---|---|
| What you've earned | What you can actually spend |
| Revenue minus costs | Money in the bank minus money going out |
| Looks at completed jobs | Looks at payment timing |
| Shows on your P&L | Shows in your bank account |
| Makes your accountant happy | Keeps your business alive |
Real Example: The Profitable Contractor Who Went Bust
March: Essex plumber completes £12,000 rewire job. Profit margin: 35% (£4,200 profit). Looks great on paper.
Problem: Customer on 60-day payment terms. Materials cost £6,500 (paid immediately). Labour cost £1,300 (paid weekly).
April: Takes three more similar jobs. Total profit for month: £16,800. Bank balance: -£2,100 (overdrawn).
May: Can't buy materials for new jobs. Turns down £18,000 worth of work. Closes business in June.
The killer: He was profitable the entire time. He just ran out of cash.
The 13-Week Cash Flow Forecast (Your Crystal Ball)
Most contractors run their business by checking their bank balance every morning. That's not cash flow management—that's panic management.
The 13-week forecast is how professional contractors see problems coming before they become crises. Here's how it works:
Building Your 13-Week Forecast
Week 1-4: Accurate (you know what's happening)
Week 5-9: Educated guesses (based on quotes sent, regular customers)
Week 10-13: Rough estimates (based on average monthly income)
Golden Rule: If your closing balance goes negative in any week, you need to act now—not when that week arrives.
| Week | Money In | Money Out | Net Change | Closing Balance |
|---|---|---|---|---|
| 1 (Current) | £4,200 | £2,800 | +£1,400 | £8,600 |
| 2 | £1,500 | £3,200 | -£1,700 | £6,900 |
| 3 | £0 | £2,600 | -£2,600 | £4,300 |
| 4 | £8,400 | £1,900 | +£6,500 | £10,800 |
| 5 | £2,100 | £4,200 | -£2,100 | £8,700 |
| 6 | £0 | £3,800 | -£3,800 | £4,900 |
| 7 ⚠️ | £1,200 | £5,500 | -£4,300 | £600 |
| 8 🚨 | £0 | £2,400 | -£2,400 | -£1,800 |
See Week 8?
You've got 8 weeks to fix that problem. Not 8 weeks to panic—8 weeks to:
- Chase that £6,000 invoice from Week 3
- Move a deposit forward from Week 9
- Delay that £3,000 van service until Week 10
- Arrange overdraft facility (just in case)
This is the difference between planning and scrambling.
Managing Payment Timing (The Real Game)
Cash flow management isn't about making more money—it's about controlling when money moves. Here's how contractors who never have cash flow problems structure their payment terms:
The Deposit Strategy
Smart Payment Structures
-
Small jobs (under £1,000): 50% deposit, 50% on completion
Covers your material costs immediately, labour costs covered by completion payment -
Medium jobs (£1,000-£5,000): 40% deposit, 40% at halfway point, 20% on completion
Regular cash injection keeps you liquid throughout the job -
Large jobs (£5,000+): 33% deposit, 33% at first milestone, 34% on completion
Never carry the full financial burden of a big project -
Very large jobs (£15,000+): Weekly billing for labour + upfront materials
Keeps cash flowing in regularly, customer never shocked by huge bill
Pro Tip: The "Materials on Account" Trick
Set up trade accounts with your suppliers (30-day terms). Customer pays materials deposit upfront. You buy materials on account.
Result: You've got their money in the bank for 30 days before you have to pay the supplier. That's free cash flow.
Warning: Only works if you're disciplined. Don't spend that money—it's earmarked for the supplier.
Payment Terms for Different Customer Types
| Customer Type | Payment Terms | Why |
|---|---|---|
| Homeowners | 50% deposit, balance on completion | They expect it, covers your material costs, completion payment before you leave site |
| Landlords (repeat) | Invoice on completion, 14-day terms | Build loyalty with trust, but keep terms tight to maintain cash flow |
| Small businesses | 50% deposit, 30-day terms on balance | They run on similar cash flow—meet in the middle |
| Large commercial | Staged payments, maximum 45-day terms | They'll push for 60-90 days—don't accept unless you can afford it |
| New customers (any type) | Higher deposit (60-70%) | You don't know if they'll pay—protect yourself |
Dealing with Late Payers (Without Losing Customers)
Every contractor has customers who pay late. The difference between contractors with healthy cash flow and those constantly stressed? They have a system for chasing payment.
The 30-Day Payment Chase System
-
Day 0: Invoice sent (same day job completes)
Include payment methods, due date, friendly message. Use system that confirms they received it. -
Day 7: Friendly reminder email
"Just checking you received the invoice—let me know if you need anything!" -
Day 14: Payment due—phone call
Friendly but direct. "Calling to check if there are any issues with the invoice due today?" -
Day 21: Formal reminder letter
Polite but firm. Mention late payment fees (if in your T&Cs). Set 7-day deadline. -
Day 28: Final warning before action
"We'll be passing this to our debt recovery service if not paid by Day 30." -
Day 30+: Small claims court or debt collection
For amounts over £500, it's worth it. Under £500, decide if it's worth your time.
Protection Strategies That Work
- Stripe/GoCardless: Take payment on the spot—no chasing required
- Direct Debit: Set up for regular customers—automated payment collection
- Credit checks: For commercial work over £5,000—know who you're working for
- Personal guarantee: For limited companies—director personally liable if company doesn't pay
- Retention of title: Materials remain yours until paid (harder to enforce, but can help)
The 5 Cash Flow Killers (And How to Avoid Them)
1. Growing Too Fast
The trap: You take on three big jobs at once. Need to buy £15,000 in materials upfront. Hire two subbies. First payment isn't due for 3 weeks. You're broke before the money arrives.
The fix: Never take on more work than your cash reserves can fund. If you can't afford to buy materials for all active jobs simultaneously, you're growing too fast.
Example: £8,000 in bank ÷ £2,500 average materials = Max 3 active jobs
2. Paying Suppliers Too Quickly
The trap: Materials arrive, you pay the invoice same day. Customer pays you 30 days later. You've funded their project for a month.
The fix: Use supplier credit terms. If they offer 30 days, take 30 days (but pay on time—you need that relationship).
3. Not Having a Cash Buffer
The trap: Operating with £500 in the business account. One unexpected bill (van repair, tax payment, equipment failure) and you're in crisis mode.
The fix: Build a 3-month operating expense buffer. Start with 1 month, build from there.
Your Cash Buffer Target
Calculate monthly operating costs:
- Your salary/drawings: £2,500
- Van costs (finance, insurance, fuel): £600
- Insurance & licenses: £150
- Phone, software, subscriptions: £100
- Average material costs: £1,500
- Subcontractor costs: £800
3-Month Buffer Target = £16,950
Sleep better at night knowing you can survive 3 months without a single payment.
4. Mixing Personal and Business Money
The trap: "The business has £3,000, I'll take £2,500 this month." Next week: "Where did all the money go? I can't afford materials!"
The fix: Pay yourself a fixed salary every month. Never varies. Business cash flow stays predictable.
5. Forgetting About Tax
The trap: January tax bill arrives. £8,000 due. You've spent it. Panic.
The fix: Set aside 25-30% of every payment into a separate savings account. It's not your money—it's HMRC's.
The Tax Bill That Kills Businesses
Self-Assessment tax is due 31 January (for previous tax year) and 31 July (payment on account for current year).
If you made £40,000 profit in your first year, you'll owe roughly:
- £8,500 in January (for last year)
- £4,250 in July (first payment on account)
- £4,250 in January next year (second payment on account)
That's £17,000 in tax payments within 12 months, even though you only owe £8,500.
Contractors who don't plan for this go bust. Don't be one of them.
Tools That Actually Help
You don't need fancy accounting software to manage cash flow. You need:
| Tool | What It Does | Cost |
|---|---|---|
| Spreadsheet Template | 13-week forecast, update weekly | Free |
| HiveSuite | Automated forecasting, invoice tracking, payment reminders | £24.99/month* |
| Separate Bank Account | Keep tax money separate from operating cash | Free (most business accounts) |
| Stripe/GoCardless | Take payment on the spot—no chasing | 1.5-2.5% per transaction |
| Accounting Software | Track what's owed, what's paid, what's overdue | £10-30/month (or use HiveSuite) |
* Founding 100 pricing—locks in £24.99/month for 12 months (1 seat). Standard pricing is £34.99/month thereafter.
How HiveSuite Handles This For You
HiveIntel (our AI assistant) can:
- Generate 13-week cash flow forecasts based on your jobs and invoices
- Alert you when cash flow is projected to go negative
- Automatically chase overdue invoices with escalating reminders
- Calculate safe deposit amounts based on your costs
- Track which customers consistently pay late (so you can adjust terms)
Stop managing cash flow manually. Let the system do the thinking.
Your 30-Day Cash Flow Transformation
Implement This, In Order
-
Week 1: Build your 13-week forecast (even if it's rough)
You can't manage what you can't measure. Start here. -
Week 2: Set up tax savings account and transfer 25% of current balance
Do this before you spend it. Future you will thank current you. -
Week 3: Chase every overdue invoice (no exceptions)
That money is yours. Go get it. -
Week 4: Update payment terms for all new quotes (deposits, milestones, etc.)
This is your new standard. Don't negotiate it away.
The Bottom Line
Cash flow management isn't sexy. It's not a shortcut to riches. It won't make you famous on Instagram.
But it's the difference between contractors who survive their first recession and contractors who don't. Between businesses that grow steadily and businesses that grow explosively (then collapse). Between sleeping soundly and waking up at 3am worrying about money.
Master cash flow, and you've mastered the hardest part of running a trade business.
Everything else is just details.
Stop Wrestling with Spreadsheets
HiveSuite's cash flow forecasting does the maths for you—and warns you before problems arrive.
£24.99/month for Founding 100 members for the first 12 months (1 seat included). All features included on every plan.
Start Your Free Trial30-day free trial. No credit card required. Set up in 10 minutes.