Why electrical work ties up cash
An electrical contractor buys materials at the start of a job and often gets paid at its end, or after inspection. On a single project the owner may purchase conduit, wire, panels, breakers and fixtures worth thousands of dollars, pay a crew for days or weeks, and then wait on a general contractor or property owner to release payment. The job can be well run and profitable and still leave a hole in the account.
In regions with active building, such as the Inland Empire, Orange County and San Diego, contractors can have several jobs open at once, each with its own materials bill and payment schedule. The more jobs, the larger the amount of cash that is out in the field.
Where the money goes
Materials
Copper wire, panels and switchgear can be bought in bulk at better unit prices, but the order has to be paid for first.
Vehicles and tools
Every electrician on the road needs a vehicle stocked with tools and common parts. Adding a crew means adding a van, and a van is both a purchase and a recurring cost.
Labor
Journeymen and apprentices are paid weekly. A crew idle because of a delayed permit or delivery still costs money.
Insurance and bonding
Larger jobs often require proof of coverage before work begins, and the premiums come due on their own schedule.
Draws, retainage and the wait
On larger commercial work, payment may come in stages as the job moves forward, with a portion held back until the work is complete. That held-back amount can sit for weeks after the crew has gone. For illustration only, and not our terms: if ten percent of a $100,000 job is held until final inspection, the contractor has $10,000 of earned money outside the account while still paying for the next job.
Residential service versus commercial work
| Residential service | Commercial projects | |
|---|---|---|
| Typical payment | At or soon after completion | In stages, with a holdback |
| Size of materials bill | Small and frequent | Large and concentrated |
| Main cash risk | Slow weeks | Slow-paying contractors |
Permits, inspections and idle crews
An electrical job is rarely continuous. Rough-in waits on inspection, finish work waits on drywall and paint, and each pause leaves a paid crew either redeployed to another site or standing by. A contractor with several jobs can move people around. A contractor with one or two cannot, and the idle days become part of the cost of the project. Planning for those pauses, and having a cash cushion to carry them, is a practical use of working capital.
Change orders add another wrinkle. Extra work is often done on a verbal go-ahead and billed later, which leaves materials and labor unpaid until the paperwork catches up.
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