Long-term projects tie up cash for months, sometimes years. Materials are bought up front, teams are booked and retention can lock away 3–5% of revenue until practical completion or the end of the defects period. When payment terms slip, cashflow tightens and projects feel riskier than they should. That is why forecasting best practices matter now – margins are under pressure, and lenders and investors expect clear visibility of future cash needs. Government estimates suggest over 1.5m UK businesses are affected by late payments, a drag on growth that directly hits working capital (UK government consultation on late payments, July 2025).
At the same time, tax rules have real cashflow implications. VAT tax points can arise earlier than you expect – for example, when you invoice or receive advance payments – so the timing of billing and milestones needs to be aligned to your VAT calendar (HMRC, 2025). And while the VAT registration threshold increased to £90,000 from 1 April 2024, many growing SMEs now sit close to the line and need tighter monitoring to avoid accidental registration or missed planning opportunities (HMRC, 2024). Against a backdrop of modest growth expectations, disciplined forecasting is the difference between steady delivery and a working-capital crunch (Office for Budget Responsibility (OBR), 2025).
Build a rolling model that matches project phases
Projects rarely follow a neat monthly pattern. Your model should mirror the real phases – design, mobilisation, delivery, commissioning and aftercare – and update weekly or monthly.
- Structure by phase: Map spend and income to each phase. The typical pattern is heavy cost ramp-up during mobilisation, slower billing until first milestones.
- Milestones and retention: Model contractual milestones, expected certification dates and retention release. Use two lines for retention: withheld and expected release.
- Scenario drivers: Build toggles for a 2–4 week delay to milestones, a 5–10% materials overrun and a client payment slip from 30 to 45 days.
- Rolling horizon: Keep 12–18 months visible. Push the model forwards each month and refresh work in progress (WIP), committed costs and pipeline.
Get VAT timing right from the start
VAT becomes due at the tax point – often when you issue an invoice or receive payment, which can be before work completes. On long projects, that can pull cash out earlier than planned. Check your contract and billing rhythm against VAT rules, including deposits and stage payments (HMRC, 2025).
- Stage billing: Align stages to tangible deliverables you can sign off promptly.
- Invoice timing: Issue only when documentation is ready to support the tax point and you can chase payment immediately.
- Cash accounting scheme: Consider whether eligibility and turnover make sense for your profile – it can improve cashflow where customers pay slowly.
- Threshold watch: Track rolling 12-month turnover to avoid accidental registration or to plan registration deliberately at a sensible month end.
If you need help mapping VAT to your billing schedule, we can review your contracts and set practical milestones that reduce cash spikes.
Turn WIP into cash faster
Work in progress is a cash sink if certification drifts. Make WIP clearance a weekly routine.
- Before you invoice: Collate photos, delivery notes, sign-offs and variations. Fewer queries mean faster approval.
- Certification cadence: Agree a standard cut-off day with the client team. Submit the same time every period.
- Record and chase: Keep a log by job and due date. Start the reminder cycle 60-90 days before release.
- Variations: Price variations promptly, even if provisional, so they do not sit in WIP for months.
Use forecasting best practices to stress-test the plan
A forecast is only useful if it holds up under pressure. Build stress tests into your model and review them with project leads.
- Small changes, big effects: Test a 5% materials increase, 10% labour slippage or 15-day payment delay.
- Scenario analysis: Best, base, downside. In the downside, assume milestone delays, slower client approvals and retention released a quarter later.
- Covenant and headroom: Track minimum cash and headroom against overdrafts. Ensure payroll and VAT are always covered.
- Key perfromance indicator (KPI) pack: Invoice cycle time, days sales outstanding (DSO), WIP days, retention outstanding and forecast-to-actual variance by job.
These forecasting best practices make performance visible and create early prompts to adjust spend, re-sequence work or escalate credit control.
Tighter terms, better credit control and supplier alignment
Commercial terms drive cashflow. Review contracts before you start and police them during delivery.
- Payment terms: Aim for 14-30 days with staged sign-off, not end-of-project lump sums.
- Risk-balancing: For bespoke or materials-heavy phases, seek deposits to offset early spend.
- Credit control: Polite reminder sent 3-5 days before due, day-of, then 7, 14 and 21 days overdue with clear escalation.
- Supplier terms: Negotiate 45-60 days where possible to align with client receipts or early-payment discounts when cash allows.
- Dispute prevention: Agree variation pricing rules and documentation before work starts.
Late payment pressure is widespread, so put process behind it. Government acknowledges the scale – over 1.5m businesses affected – and is consulting on tougher measures (gov.uk, 2025).
Funding options that support delivery, not just survival
Sometimes a project profile needs external support. Choose instruments that track your billing pattern.
- Revolving overdraft: Works for short timing gaps but needs discipline.
- Invoice finance: Can accelerate receipts against certified valuations.
- Project-linked term loans: Useful for capital-expenditure-heavy mobilisations.
- Supplier finance: Early-pay platforms. Take discounts where return on investment (ROI) beats your cost of capital.
Cost of capital and growth prospects remain under scrutiny, so plan conservatively and communicate early with lenders (OBR, 2025).
Quick wins to improve cashflow this quarter
- Milestone hygiene: Smaller, certifiable stages speed billing.
- DSO focus: Senior follow-up on the largest outstanding balances.
- Retention diary: Target imminent releases with proactive evidence packs.
- VAT calendar: Align invoice dates with returns to avoid bunching.
- Model discipline: Update weekly for a single source of truth.
Strong project cashflow is built on clear contracts, disciplined billing and live forecasting. The tactics above – especially the forecasting best practices on scenarios, sensitivities and VAT timing – reduce surprises and help you make decisions earlier. Remember the risks: tax points can pull VAT forward, milestone slippage can trap WIP, and retention can be forgotten until the quarter after you needed the cash.
If you would like us to review a project and build a practical rolling model, we can help with VAT timing, billing schedules and funding routes. Speak to us about forecasting best practices and set up a cashflow review with our team: book a project cashflow review.