The True Cost of Carrying Unpaid Receivables on Public Projects

Slow payment is endemic in public works construction. Despite prompt payment statutes, the reality is that subcontractors routinely wait 60, 90, or 120+ days to receive payment for completed work. Each day of delay has a quantifiable cost that most subcontractors underestimate.

Calculating the True Cost

The direct cost of carrying unpaid receivables includes:

- Cost of capital. If you're borrowing to cover the gap (credit line, equipment financing, personal loans), the interest rate is your direct carrying cost. Even at 8%, a $300,000 receivable outstanding for 90 days costs $5,917 in interest. - Opportunity cost. Money tied up in receivables can't be used for materials, new project mobilization, or equipment. If you miss a bid because you can't front the materials, the opportunity cost far exceeds the interest. - Overhead absorption. Your monthly overhead continues regardless of payment timing. If payments are delayed, you're financing not just the receivable but your entire operation during the gap. - Bonding impact. High receivable balances relative to revenue reduce your working capital, which directly reduces bonding capacity — limiting your ability to take on new work.

Accelerating Collections

Practical steps to improve receivable turnover:

1. Bill promptly and accurately. The clock doesn't start until you submit a clean pay application. Errors and missing backup create delays. 2. Know the prompt payment deadlines. Federal projects: the GC must pay subs within 7 days of receiving payment from the agency. State deadlines vary. If these deadlines aren't met, interest and penalties may apply. 3. Follow up in writing. If payment is late, send a written reminder citing the contract payment terms and applicable prompt payment statute. This creates a record for potential legal action. 4. Invoice change orders separately. Don't let a disputed change order hold up payment for undisputed base work. 5. Consider early payment discounts. Offering a 1–2% discount for payment within 10 days can be cheaper than carrying the receivable for 90 days.

The Bottom Line

Every day an invoice goes unpaid costs you more than the face value of the receivable. The carrying cost includes interest on borrowed capital, opportunity cost of tied-up cash, overhead absorption during the gap, and the bonding capacity reduction that limits your ability to take on new work. The subcontractors who manage receivables effectively bill promptly and accurately, know the prompt payment deadlines in their contracts, follow up in writing when payment is late, and treat receivable management as a core business function rather than an afterthought.