Cash-flow forecasting: spot a bleeding project early
The P&L showed AED 6M profit. Ninety days later, the same contractor couldn’t make payroll. The warning signs were flashing the whole time — just not in the accounts.
Profit is a rear-view mirror. Cash is the windscreen. I saw this on a Dubai sewerage package under FIDIC Red Book 1999: certified revenue looked healthy, headline profit looked healthy — and the business nearly ran out of money. The problem wasn’t that the contractor was unprofitable. It was financing the project: funding unbilled work, carrying slow-paying certificates, and leaving too much capital trapped in retention.
Three numbers that warn you ~90 days early
1. Uncertified WIP
It rose from AED 2M to AED 5.5M in two months — the contractor was funding work faster than the Engineer was certifying it under Clause 14.6. Uncertified WIP is cash you’ve spent that you cannot yet bill, so track it weekly.
2. IPC collection days
Collection on interim payment certificates slipped from 60 to 95 days. Certification is not cash. Watch the days, not just the certified value.
3. Retention exposure
Retention reached AED 4.2M — about 40% of net assets — locked up when liquidity was needed most. Cap it against net assets and pursue release at Taking-Over and DNP expiry.
What we changed
We changed the operating rhythm, not the project: weekly measurement and uncertified-WIP reviews, a disciplined certificate submission and collection cadence, and active pursuit of eligible retention release. Payroll survived.
The wider point: margin is not cash
On another job — an AED 28M package at 12% margin — AED 11M of working capital was tied up for 19 months. At an 11% financing cost, carrying it cost roughly AED 1.9M, and its return on capital fell below the cost of capital. It was generating revenue while destroying value. Cash conversion, not margin, decides whether a project strengthens your company or quietly drains it.
You don’t need a new system to begin — you need three numbers on a weekly page. Which one is creeping up on your project right now: uncertified WIP, IPC collection days, or retention?
CA. Binod Chapagai — Chartered Accountant & Virtual CFO, APM Business Consultancy. Connect on LinkedIn.