There's a pattern that shows up in construction companies between $10M and $100M in revenue so consistently it might as well be a law of the industry: the line of credit that never goes to zero.
You draw it down when payroll hits and receivables are slow. You pay it back when a big check comes in. But the low point keeps creeping up — $200K became $500K became $1.2M, and you're not totally sure when that happened. The bank renews it every year and doesn't say anything. Life goes on.
Until it doesn't. The bank tightens covenants. A big job goes sideways and receivables slow. The surety gets nervous about your liquidity ratios. And suddenly the line of credit that felt like a safety net reveals itself as a structural problem you've been ignoring for three years.
Why Construction Companies Get Trapped on the Line
The Billing Timing Problem
Construction cash flow is inherently lumpy. You spend money on labor and materials every week. You bill monthly — sometimes less frequently on certain contract types. And you collect 30-60 days after billing. The gap between spending and collecting is the fundamental reason construction companies need working capital facilities.
But the gap doesn't have to be as large as it is. Most construction companies have 10-15 days of unnecessary delay built into their billing cycle: slow pay app preparation, late submission, disputes that could have been prevented with better documentation. Every day you shorten that cycle is a day less of line of credit utilization.
The Retainage Accumulation Problem
Retainage is invisible debt. Every project you complete leaves 5-10% of contract value locked up, sometimes for a year or more after completion. If you're growing — bidding and winning more work — your retainage balance grows with you. A $40M revenue company running 10% retainage on a 12-month average project duration is carrying $3-4M in retainage at any given time.
That $3-4M has to be funded somehow. For most contractors, the answer is: the line of credit. Which means your credit facility isn't funding operations — it's funding a retainage balance that you're not actively managing.
The WIP Cash Flow Problem
Here's one most CFOs miss: jobs that are underbilled in the early stages create cash flow deficits that get funded by the line. If you're spending money faster than you're billing on active projects — a common pattern on large GC projects with monthly billing cycles — the difference has to come from somewhere.
Track your net underbilling (costs in excess of billings across all active projects) monthly. Watch whether it's growing. If it is, your line of credit utilization will follow.
The Cash Flow Disciplines That Break the Cycle
1. Bill faster.
Submit pay applications within 3 days of the billing period close. Not 10 days. Not whenever the PM gets around to it. Three days. Every day of billing delay is a day of line utilization. On $500K of monthly billings, a 7-day improvement in billing speed frees up roughly $115K in average line utilization.
2. Chase retainage systematically.
Build a retainage release process with the same discipline you apply to new billing. Track it by project, assign ownership, set escalation triggers. Getting retainage cycles from 14 months to 10 months on $2M outstanding is $667K freed permanently.
3. Stop funding sub-tier float.
When you pay subs before you collect from the GC, you're financing their operations on your line of credit. Match your sub payment timing to your collection timing wherever contracts allow. Joint check agreements with owners eliminate this problem entirely on large sub-tier exposure.
4. Know your cash conversion cycle.
Days to bill + days to collect + days retainage is outstanding - days you can stretch payables = your cash conversion cycle. Every construction CFO should be able to say this number from memory and have a plan to reduce it by 5 days per year.
What Your Bank Relationship Should Actually Look Like
Banks don't like construction. The cyclicality, the retainage, the concentration risk, the bonding requirements — it's a complicated credit. Most construction companies manage their banking relationship reactively: they call when they need more capacity, and they hope the answer is yes.
The CFOs who have strong banking relationships do the opposite. They provide monthly reporting proactively. They explain WIP trends before the bank asks. They show up to the annual review with a presentation instead of showing up and answering questions.
When you demonstrate financial sophistication — accurate WIP, clean AR aging, documented cash flow forecast — banks give you more latitude, better pricing, and more capacity. It's not complicated. They're trying to lend money to businesses they understand. Be understandable.
Jake's CFO Insights capability maintains a rolling 13-week cash flow forecast and produces the financial reporting package your bank wants to see — automatically, from the same data sources driving the rest of your financial operation. No manual compilation. No Friday afternoon scramble before the Monday bank meeting.
The Target State
A well-run construction company at your revenue size should have a line of credit that:
- •Goes to zero at least once per year (proving it's a facility, not permanent debt)
- •Has a peak utilization below 60% of the total facility
- •Is never the reason you can't bond a job or take on new work
If your line doesn't meet those criteria, the fix isn't to ask for more capacity. The fix is to shorten your cash conversion cycle, manage retainage aggressively, and build the financial visibility to understand exactly where your cash is going and when it's coming back.
The line of credit is a tool. It shouldn't be a life support system.
Jake maintains a live 13-week cash flow forecast and flags line of credit pressure before it becomes a crisis. See the CFO Insights agent or schedule a demo to see it working with real construction financials.