Published November 7, 2025 . 8 mins read

Not all working capital is created equal. Working capital keeps construction businesses alive, but not all working capital works for you. A contractor can show $1 million in working capital on paper yet still struggle to make payroll. The difference lies in the quality and liquidity of those assets.

When bonding companies, sureties, banks, and CPAs review your financials, working capital is one of the first areas they analyze. It directly influences your bonding capacity, access to lines of credit, and the feedback you receive from financial partners. Strong, reliable working capital signals stability and discipline. Weak or illiquid capital can raise red flags and limit your ability to grow.

For construction finance leaders, understanding the composition of working capital, not just its amount, is essential to building lender confidence, maintaining bonding capacity, and ensuring long-term financial strength.

The Reality of Financial Understanding the Core Metrics Behind Working Capital

Healthy working capital management begins with knowing your numbers. These KPIs give you the visibility needed to track liquidity, performance, and your ability to meet short-term obligations.

Measures your ability to pay short-term obligations using current assets.

• A ratio above 1.0 indicates more assets than liabilities.

• Strong contractors aim for 1.3–1.5 or higher, depending on their risk tolerance.

• Below 1.0 suggests potential liquidity struggles.

This is the first number sureties and lenders review, a snapshot of your ability to stay on your feet if something goes sideways.

Shows how long it takes to collect payment after an invoice is issued. A high DSO means cash is tied up in receivables, slowing down operations and payroll.

Tip: Payment programs like QuickPay can eliminate uncertainty, ensuring subcontractors get paid faster and projects stay on schedule.

Tracks how long it takes you to pay suppliers. Extending DPO can preserve cash, but pushing it too far may hurt supplier relationships.

Combines DSO, DPO, and inventory days (if applicable) to show how fast cash moves through your business. The shorter the cycle, the healthier your liquidity.

Shows whether your capital can support your future workload. A high ratio signals you might be taking on more work than your finances can handle. You can’t stop bidding altogether, but you have to be smart about timing. If backlog is strong, bid on projects that fill schedule gaps or have later start dates.

Indicates your ability to meet fixed financial obligations (debt, leases) with current earnings, key to maintaining a line of credit. 1.25 is often the minimum, but hitting the floor doesn’t mean you’re on solid ground. Lenders watch this quarterly, and missing the mark can impact your ability to borrow.

What is the Difference Between Good and Bad Working Capital?

Not all working capital is equal. While the formula, Current Assets minus Current Liabilities, is simple, the quality of those assets tells the real story.

• Cash reserves and reliable liquidity

• Receivables that turn quickly

• Reasonable underbillings due to timing

• Transparent supplier terms

These assets are liquid and dependable, building trust with sureties and lenders.

• Slow or doubtful receivables

• Excessive underbillings tied to project or billing issues

• Little or no cash on hand

• Assets sureties discount, such as shareholder receivables or heavy prepaids

Even if two contractors show the same dollar amount of working capital, the one with more liquid, trustworthy assets will always appear stronger to a lender.

Common Questions About Working Capital in Construction