By the Advisory Team at Quantum House | Chartered Accountants & Tax Advisers, Sydney
The construction industry faces a unique set of financial challenges that general business accounting simply does not address adequately. Long project timelines, milestone-based billing, retention amounts, subcontractor payment obligations, and fluctuating materials costs create cash flow dynamics that can put even a profitable construction business under serious financial pressure. This article explores the key accounting and cash flow challenges in construction — and how specialist accounting support can help builders manage them.
The Cash Flow Problem in Construction
Construction businesses are structurally vulnerable to cash flow stress. Revenue is recognised progressively over the life of a project, but costs — particularly for materials, plant hire, and subcontractors — are often incurred upfront. Progress payments may be delayed by clients, disputed, or subject to retention deductions of five to ten per cent held until practical completion. Meanwhile, subcontractor payment obligations under the Security of Payment legislation create strict timelines for disbursements. The result is that a construction company can be profitable on paper while simultaneously struggling to meet its weekly payroll.
Progress Claim Billing and Revenue Recognition
Billing on construction projects must align with progress milestones or percentage completion, and the timing of progress claims has a direct impact on cash position. An experienced construction accountant helps businesses structure their progress claim schedules to bring cash in as early as possible, prepare supporting documentation that minimises claim disputes, and account for revenue correctly under AASB 15 — the accounting standard that governs revenue recognition for construction contracts.
Managing Retention Amounts
Retention amounts — typically a percentage of each progress payment held by the client until practical completion and defects liability — can represent a significant tied-up asset. Construction businesses often underestimate the working capital impact of retentions across multiple concurrent projects. A rolling retention schedule helps management track what is owed, when it is expected to be released, and how to factor it into cash flow forecasts. Under new legislation in several states, retention money must be held in trust accounts — compliance with these obligations is a separate legal and accounting requirement.
Subcontractor Payment Obligations
Security of Payment legislation in every Australian state creates legally enforceable rights for subcontractors to receive payment within prescribed timeframes. Failure to respond to a payment claim within the statutory timeframe — or to make payment by the due date — can result in a statutory debt, adjudication proceedings, or licence issues. Construction businesses must have systems in place to track subcontractor invoices, respond to payment claims, and process payments on time — and these systems need to be supported by an accounting function that understands the legislative framework. Getting the subcontractor-versus-employee distinction right is equally important.
QBCC Compliance for Queensland Builders
Many Queensland construction businesses holding a QBCC licence face additional annual financial reporting obligations. The QBCC’s Minimum Financial Requirements Policy requires reporting that demonstrates the licensee’s Net Tangible Assets meet the required threshold for their licence category. The exact obligation depends on your licence type and category — and note that, from 7 March 2025, individual licensees in the self-certifying categories SC1 and SC2 are no longer required to lodge MFR financial reporting (company licensees in those categories, and all licensees in categories 1 to 7, still must). Quantum House are specialist QBCC accountants, helping Queensland construction businesses prepare and lodge their annual reports and monitor their NTA position throughout the year. See our dedicated QBCC accounting service page for further detail.
A Hypothetical Case Study: Profitable, Yet Always Tight
Consider Hadfield Construction, a fictional commercial fit-out builder running three projects at once. On paper, all three were profitable — yet cash was constantly tight, and the owner couldn’t work out why. A construction-specific review found the answer in two places. First, retentions: across the three jobs, roughly $140,000 was being held by clients — five to ten per cent of each progress payment — none of it due for release until practical completion, months away. The owner had never tracked it as a single number. Second, timing: a major progress claim had been submitted late and then queried, delaying around $90,000 of cash by six weeks — precisely when subcontractor payments fell due under Security of Payment timeframes, and payroll still had to run. With a rolling retention schedule and a 13-week forecast built around progress-claim and retention-release dates, the picture became clear and manageable. They tightened their progress-claim documentation to reduce disputes, sequenced claims to bring cash forward, and planned around the retention release dates. The profit had always been there — it was simply locked up in retentions and mistimed claims. Seen clearly and early, the constant cash stress turned into something the business could manage. (This scenario is illustrative only; every business’s circumstances differ.)
How Quantum House Supports Construction Businesses
Quantum House has specialist experience in construction company accounting — including cash flow forecasting for long projects, retention management, QBCC reporting, and subcontractor payment compliance. We work with construction businesses of all sizes, from residential builders to commercial contractors and civil engineering firms. If you would like to discuss your construction business’s accounting and cash flow needs, contact Quantum House today.
Ready to talk? If you would like to discuss any of the topics covered in this article for your business, contact Quantum House today for a confidential consultation. Visit quantumhouse.com.au or call our Sydney office to speak with a senior adviser.