A working model towards enhancing working capital management in the construction industry: a case study of Fossil Contracting Company

Abstract

Effective working capital management is critical in the construction sector, where projects are capital-intensive, cash flows are irregular, and payment cycles are often prolonged. This study focuses on developing a working model to enhance working capital management within Fossil Contracting Company, a mid-sized construction firm operating in Zimbabwe. The research identifies key challenges faced by the firm, including delayed client payments, cost overruns, limited access to credit, and inefficient management of receivables, payables, and inventory. Through a combination of financial analysis, interviews with management, and review of industry best practices, the study establishes a structured framework aimed at improving liquidity, optimizing resource utilization, and strengthening financial sustainability. The proposed model places Cash Flow Forecasting and Liquidity at its core, recognizing that accurate forecasting enables proactive allocation of resources and timely identification of funding gaps. Around this core, five interrelated dimensions form the pillars of effective working capital management. Receivables Optimization is addressed through milestone-based billing, early payment incentives, and rigorous credit control to accelerate cash inflows. Payables and Supplier Management emphasizes negotiating flexible payment terms, while safeguarding supplier relations to secure uninterrupted project delivery. Technology Integration supports efficient inventory and resource planning, reducing idle capital tied up in materials by leveraging digital monitoring tools. Cost Control and Budgeting is achieved through systematic project costing, variance analysis, and scenario planning to strengthen financial discipline. Finally, Risk Management focuses on mitigating uncertainties linked to delayed payments, cost overruns, and financing constraints through insurance mechanisms, contractual safeguards, and diversified funding sources, including supplier credit and invoice discounting. Findings indicate that this integrated framework not only improves Fossil Contracting’s ability to meet short-term obligations but also enhances project execution, reduces reliance on expensive borrowing, and builds long-term resilience. Ultimately, this study contributes a practical and adaptable model for construction firms navigating liquidity challenges in volatile environments.