Cash Flow on Insurance Jobs: Collecting What You're Owed Without Going Broke

The ACV-to-RCV collection gap

Most homeowner's insurance policies pay on a replacement cost value (RCV) basis, but they don't pay the full amount upfront. The carrier issues the first check at actual cash value (ACV), which is the replacement cost minus depreciation. On a $50,000 claim, depreciation might be $12,000, so the first check is $38,000.

The remaining $12,000, called the recoverable depreciation or holdback, gets released after you complete the work and submit proof. Here is the problem. You're doing $50,000 worth of work, but you only have $38,000 in hand.

You're financing $12,000 out of your own pocket until the holdback is released. Multiply that across 10 active jobs and you're carrying $80,000 to $120,000 in float. The holdback release process varies by carrier and can take 15-45 days after you submit the completion documentation.

Some carriers release quickly. Others drag it out. Your cash flow plan has to account for this gap on every single RCV claim.

When to start work vs. waiting for supplement approval

This is one of the hardest judgment calls in restoration. You've submitted a supplement for $14,000 in additional scope. The carrier hasn't approved it yet.

Do you start the additional work or wait? Starting work before approval means you're financing the supplement amount with no guarantee of reimbursement. Waiting means the project stalls, the homeowner gets frustrated, and your crew sits idle.

The answer depends on the item. Emergency and code-required work should proceed regardless of supplement status. If you need to replace a subfloor to meet building codeYour Walls Are Open. Now the Inspector Wants $5,000 in Upgrades.Nobody warned me about this one. When the drywall came down on my claim, I thought we were just replacing what got damaged. Then the building inspe...
Read more → before installing new flooring, do it and submit the supplement with documentation showing it was required.

Cosmetic or discretionary items can wait. If the supplement is for upgraded countertops or cabinet hardware, wait for approval. A general rule: if the work is necessary for health, safety, or code compliance, proceed and document thoroughly.

If it is an upgrade or preference item, wait for the approval letter. Never start work over $5,000 without approval unless it is an emergency or code requirement.

Progress billing on large claims

On jobs over $25,000, progress billing protects your cash flow. Instead of waiting until the entire project is complete to invoice, bill in stages tied to specific milestones. A typical progress billing schedule for a $60,000 kitchen restoration would be: 30% ($18,000) upon signed contract and material order, 30% ($18,000) upon completion of demo and rough-in trades, 30% ($18,000) upon completion of finish work, and 10% ($6,000) upon final walkthrough and punch list completion.

This structure means you're never more than $18,000 ahead of your collections. Include the progress billing schedule in your contract and have the homeowner sign it before work begins. The homeowner is your customer, not the insurance company.

The insurance check is made out to the homeowner (and sometimes the mortgage company), and the homeowner pays you. Progress billing gives the homeowner a clear payment schedule tied to visible milestones, which builds trust and keeps payments on track.

Holdback recovery timing and follow-up

The recoverable depreciation, or holdback, is money the homeowner is owed by their carrier once the work is complete. But it doesn't arrive automatically. The homeowner (or you, with their authorization) must submit a completion packet to the carrier that includes proof the work was done.

That packet should include your final invoice, completion photos, a certificate of completion signed by the homeowner, and any lien waivers the carrier requires. Once submitted, carriers typically release the holdback in 15-30 days. Some take longer.

Track every holdback amount in your job management system with the submission date and expected release date. If the holdback hasn't arrived 30 days after submission, follow up with the carrier. If it hasn't arrived at 45 days, escalate.

On a $50,000 claim with $12,000 in holdback, that money sitting in limbo for 90 days costs you real money in carrying costs, especially if you financed materials or labor for that job.

The homeowner's role in collections

This is the part many contractors get wrong. The homeowner is the policyholder. The insurance company's contract is with the homeowner, not with you.

Insurance checks are typically made payable to the homeowner (and often the mortgage company). You have a contract with the homeowner for the work. The homeowner has a contract with the carrier for the claim payment.

That means the homeowner is your customer for payment purposes. If the carrier sends the check and the homeowner doesn't pay you, that's a contract dispute between you and the homeowner, not between you and the carrier. Protect yourself with a clear contract that specifies payment terms, progress billing milestones, and what happens if insurance proceeds are received but not forwarded to you.

Some states allow contractors to file a mechanic's lien if they are not paid, which creates a legal claim against the property. Know your state's lien laws and deadlines. In many states, you must file within 60-90 days of last providing labor or materials.

Tracking receivables by claim age

Every Friday, your office should produce an aging report that shows every dollar owed to you, broken into 30-day buckets: 0-30 days, 31-60 days, 61-90 days, and 90+ days. Healthy restoration companies keep 80% or more of their receivables in the 0-60 day bucket. If more than 20% of your receivables are over 90 days, you have a systemic collections problem that will eventually sink your business.

For each claim over 60 days, someone on your team should be making a phone call every week. Not a nasty call. A professional follow-up.

"I'm checking on the status of claim 2024-55678. We submitted the completion packet on March 15th and the holdback of $8,400 hasn't been released yet. Can you check the status?

" Track the reason for each delay: supplement pending, holdback not submitted, homeowner hasn't endorsed the check, mortgage company hasn't signed off. Each reason has a different solution. A $3 million restoration company with 15% of receivables over 90 days is carrying $450,000 in at-risk revenue.

At a 10% annual cost of capital, that's $45,000 per year in carrying costs, money that goes straight to your bottom line if you can collect 30 days faster.