5 Cash Flow Mistakes Melbourne Construction Businesses Make

Mistake 1: Submitting progress claims late or incorrectly

Under Victoria's Security of Payment Act 2002 (updated through the Building and Construction Industry Security of Payment Act), progress claims are a legal mechanism to ensure cash keeps moving through the supply chain. Yet many Melbourne builders submit claims late, include ambiguous line items that invite disputes, or fail to understand the reference date requirements. A claim submitted even one day after your contractual reference date can delay payment by an entire billing cycle. Every week your progress claim sits unclaimed is a week your business is effectively lending money interest-free to your client. Review your contracts to identify every reference date, diarise them, and submit clean, itemised claims on time without exception.

Mistake 2: Not accounting for retention funds as restricted cash

Retention funds held by head contractors or principals are a form of restricted cash — you have earned it, but you cannot access it until practical completion and the defects liability period ends. We frequently see Melbourne construction businesses that treat retention receivables as available cash in their forecasts, then experience a liquidity crisis when a large project reaches the retention release milestone six to twelve months later than expected due to disputes or defects claims. Retention funds should be tracked separately in your accounting system, excluded from operational cash forecasts, and never relied upon to fund current project costs.

Mistake 3: Paying sub-contractors before receiving payment from principals

The default position for many principals and head contractors is to include "pay when paid" clauses in contracts — although under Victoria's Security of Payment Act such clauses are now void in most circumstances. Regardless, many smaller Melbourne builders continue to fund sub-contractor payments from their own cash, effectively bridging the gap between when subs complete work and when the head contractor is paid. When multiple projects are running simultaneously, this creates compounding cash gaps. The solution is strict project-level cash flow forecasting and ensuring sub-contractor payment dates are aligned with your own receipt schedule — not your billing schedule.

Mistake 4: No provision for GST, income tax, and super liabilities

In the construction industry, project revenue moves through accounts quickly and the temptation to use the full balance for operations is high. But one third of most GST-inclusive invoices is not your money — it belongs to the ATO. We recommend Melbourne construction businesses maintain a separate tax holding account and transfer 10% of all GST-inclusive receipts immediately upon receipt, plus a further 25%–30% of net profit as an income tax provision. Superannuation for employees must be paid quarterly by the BAS due date or the deduction is denied and SG charge penalties apply. Construction insolvencies in Victoria frequently trace back to accumulated ATO debts that were never provisioned for — it is one of the most preventable causes of business failure in the industry.

Mistake 5: Confusing project profit margins with actual cash position

A project showing a 20% gross margin on a $2 million contract looks excellent in a profit and loss report. But if that project required $800,000 in materials and sub-contractor costs paid in months one and two, with progress claims received in months three and four, the business may show a paper profit while experiencing a serious cash deficit during the delivery phase. This "profit illusion" is endemic in Melbourne construction and is the reason why businesses that appear healthy on their P&L suddenly cannot meet payroll. The solution is a rolling 13-week cash flow forecast updated weekly — not monthly management accounts. Track actual cash in and out by project, identify gaps three months before they arrive, and arrange trade finance or overdraft facilities before you need them, not during a crisis.