CASHFLOW – TOP 5 TIPS

Introduction

In the dynamic and often complex world of construction, effective cash flow management is not merely advantageous, it is essential to business continuity and financial resilience. Our members operate at the highest professional standards, and we recognise the importance of ensuring that their contractual rights are protected, their financial risks are mitigated, and their hard-earned payments are secured. To assist our members in navigating financial risks and safeguarding liquidity, we have identified five key strategies to enhance cash flow stability in 2025.

1. Retention money – Tip 1 – Get Retention Money Back

Typically, retention money is set between 3% to 5% of the total work value. That money is deducted from payments made to the contractor, who then deducts it from payments made to any subcontractors. It is then paid to the owed party in two stages during the project cycle:

• 1st half on completion of the works
• 2nd half at the end of the defects liability period

In reality, it does not always work this way, and sub-contractors often face delays in getting these back. Delays could be due to a variety of reasons, however in our experience the most common are:

• an act or event occurring under another contract (often called “pay-when-certified”); or
• pending on payment from the main contractor under the main contract (called “pay-when-paid”).

Both practices are prohibited under the Housing Grants Construction and Regeneration Act 1996 (as amended) except for the latter which is legally effective only where it is in relation to upstream insolvency, and it is expressly stated in the sub-contract (also called “upstream insolvency clause”). To help members to address these issues, our team has created a template that can be amended to suit your contractual circumstances for claiming retentions. This template can be accessed via this link.

2. Insolvency – Tip 2 – Always Check For Solvency (Free Credit Checks For Members)

Prior to commencement on each project, we recommend undertaking credit checks on all clients and key suppliers, even if they are regulars. You will need to find out:

• Whether their financial stability is under threat and ensure you do not have too much risk with any one client or group of clients.
• Check whether the contract contains a cross-contract set-off clause, because if it does it will mean payment issues on one project can infect payment management on other project contracts with that same client or supplier.
  
  

Managing The Risk Of Counterparty Insolvency

You may need to take into consideration a bond or guarantee from your client or supplier to secure any potential future debt.

• Credit checks
• Free credit checks for members
• Please send your credit check request to membership@thebesa.com.
  
  

3. Risk Management – Tip 3 – Always Use The BESA Insolvency & Risk Factsheet

In addition to the above, the BESA legal & commercial team has drafted an Insolvency and Risk Management factsheet which can be found here.

4. Upstream Insolvency Clauses – Tip 4 – Say “No” To Upstream Insolvency Clauses

• Upstream insolvency clauses are typically found in sub-contract agreements. These clauses typically state that if the Employer becomes insolvent the contractor will have no further obligation to pay the sub-contractor for works done (unless the contractor has received payment from the Employer, and only to the extent that the payment relates to the works carried out by the subcontractor).
• It is important to acknowledge that the sub-contract creates a separate contractual relationship between a contractor and the sub-contractor, meaning the contractor should not be let off the hook for works the subcontractor has completed.
• While the latter part of the upstream insolvency clauses may appear to offer a glimmer of hope where payments have been received by the contractor, such payment will unlikely be acknowledged to the subcontractor or impossible to prove by the subcontractor. Thus, clauses like these should be rejected in entirety.
  
  

5. Vesting Certificate And Retention Of Title – Tip 5 – Use Vesting Certificates

Many standard form construction contracts such as the JCT and NEC forms include conditions requiring the contractor to show reasonable evidence that off-site property is vested in the client, materials are set apart and clearly marked and insured. It is therefore considered good practice to raise a vesting certificate to demonstrate that ownership to offsite property will transfer to the client upon payment, thus overcoming third party claims of retention of title.

Our team have drafted a vesting certificate template letter which can be found here.

6. Final Thoughts

At BESA, we are more than just a trade body, we are your strategic partner, dedicated to empowering our members with legal, commercial, and financial tools to navigate uncertainty and capitalise on opportunity. Should you require bespoke guidance or legal expertise, the Legal & Commercial team is here to help. We are committed to standing with you, advocating for you, and ensuring you have every possible advantage in 2025.

Together, let’s fortify your cash flow, safeguard your business, and set the course for a prosperous year ahead. For personalised advice, contact the Legal & Commercial team at legal@theBESA.com.

Please note: this factsheet was last updated in June 2025, is aimed for general information purposes only and does not constitute legal or other professional advice. The information is considered to be correct at the date of publication however any changes and further developments may impact the accuracy and validity of the information provided here. For further advice or assistance with a contract review please contact Legal & Commercial team on legal@thebesa.com.