A rough guide, not advice: it assumes work is spread evenly over the job and paid after the same number of days each month. Published payment days are averages across all of a contractor's suppliers, so your own experience may differ.
How the calculation works
On most packages you're paid in arrears: you do a month's work, apply for payment, and the money arrives some weeks later. Until it does, you've paid for the labour and materials yourself. The calculator spreads the package value evenly over the job and works out the value of work you'll have done but not been paid for at any one time, based on how many days the contractor takes to pay. Retention is counted separately: it builds up through the job and is usually released half at completion and half after the defects period.
Your margin matters too. If you make 10% on the job, about 90% of the money you're waiting for is cash you've already paid out, so the calculator shows both the amount owed and the cash you're funding.
A worked example
Take a £300,000 package over six months for a contractor that pays in 45 days on average and holds 5% retention, with a 10% margin.
- Work done each month: £300,000 ÷ 6 = £50,000
- Unpaid work at any one time: £50,000 × 1.5 months × 95% (after retention) = £71,250
- Retention held by the end of the job: 5% of £300,000 = £15,000, with £7,500 typically released at completion and £7,500 after defects
- Most you could be owed at once: £86,250, of which about £77,600 is your own money already spent on labour and materials
Change one number and the picture moves quickly: the same job with a contractor that pays in 30 days ties up £47,500 in unpaid work instead of £71,250. That difference is why payment days are worth checking before you sign.
Where the contractor figures come from
Large companies must report how they pay their suppliers every six months. When you pick a contractor, the calculator starts from the average days to pay and retention rate in its latest government report. These are averages across all its suppliers, so your own terms may differ: change any figure to match your subcontract. Compare contractors on the payment league table. Paid late on a job already? Work out what you can claim with the late payment interest calculator, and tell us how you're really being paid in our anonymous payment survey.
Questions
- What does cash tied up mean?
- The money a job has cost you that you haven't yet been paid: work done since your last payment, applications waiting to be paid, and retention held back. It's the amount you'd be owed if the contractor stopped paying, and the cash your business has to fund until it does pay.
- Why do payment days matter so much?
- Every extra 15 days a contractor takes adds half a month's work to what you're owed. On a package worth £50,000 a month, moving from 30 to 45 days adds about £24,000 to the amount you're carrying.
- When is retention released?
- Usually half at practical completion and half at the end of the defects period, often 12 months later. The dates should be in your subcontract. Retention is often paid late and can be lost entirely if the contractor fails, so it's worth negotiating a lower rate, a cap or a retention bond.
- How can I reduce the cash a job ties up?
- Agree shorter payment terms and monthly (or more frequent) valuations, apply on time every month, use your payment and pay less notice rights, ask for a lower retention rate or a retention bond, and don't let unpaid applications build up before you raise them.
- How accurate is the result?
- It's a guide. It assumes work is spread evenly and paid after the same number of days each month. Real jobs start slowly, peak in the middle and have variations, so the peak can be higher than the calculator shows.