How to Find Working Capital Stuck in RA Bills: EPC CFO Guide

For an EPC (engineering, procurement and construction) company in India, the running account bill is where most working capital waits. This guide shows where it gets trapped and how to measure each stage.

Where is working capital trapped in an EPC company?

In an EPC company, trapped working capital sits mostly in three places: work executed but not yet certified, RA bills certified but not yet paid, and retention money held by the client. None of it is lost. All of it is unavailable to fund the next mobilisation.

Working capital is receivables plus inventory, less payables. On a project the receivable side is larger than the balance sheet suggests, because unbilled work and retention are often parked elsewhere. For a CFO (chief financial officer), this makes working capital a process question: the cash is stuck at a step, and the step has an owner.

What is an RA bill, and why does it decide when cash arrives?

An RA bill (running account bill) is the periodic bill a contractor raises for work completed so far, measured on site and certified by the client before payment. The length of the RA bill cycle, far more than the client's payment terms, decides when money arrives.

Each RA bill covers quantities executed since the previous bill, at contract rates, less retention and mobilisation advance recovery. See what an RA bill is and how it is calculated. One detail matters: an RA bill is usually dated when accepted, so a rejected and resubmitted bill often carries only the new date, erasing the delay a finance team is trying to find.

What are the stages of the RA bill journey, and what delays each one?

The RA bill journey has six stages: measure, submit, certify, invoice, collect and release retention. Four of the six are wholly or partly inside the contractor's own control, which is why most trapped working capital in construction is recoverable internally.

Stages 1 to 4 happen before an invoice exists. Most ERP (enterprise resource planning) reports start the clock at stage 4, so standard receivables ageing cannot see them.

Why does RA bill certification delay hide from standard reports?

RA bill certification delay hides because DSO (days sales outstanding) is normally measured from the invoice date, and the invoice cannot be raised until certification is done. A three week certification wait therefore never appears in DSO.

Measured that way, DSO rewards billing late, and a healthy looking DSO can sit on top of a badly delayed cycle. See how DSO is calculated and where it misleads. The same blind spot understates the cash conversion cycle, which is built on DSO. The fix is to start the order-to-cash clock at the date work was completed, which is covered in full in how to measure DSO from work execution.

How do you measure working capital stuck in RA bills?

Measure it bill by bill: for every RA bill still open, record the date work was executed, the date of each submission and each rejection, the certification date, the invoice date and the payment date. The gaps between those dates, multiplied by the bill value, show where working capital in an EPC company is waiting.

A practical sequence for a finance team:

1. Pull the event dates, not just the bill. Keep every rejected submission, because the first submission date is the one that matters.
2. Compute the wait at each stage per bill.
3. Weight each wait by value. A ₹50 lakh bill and a ₹5 crore bill waiting 30 days are not the same problem.
4. Split internal from external. Stages where the contractor holds the bill are internal. Stages where the client holds it are external. Argue about them separately.
5. Group rejections by cause. Bills are usually sent back over two or three line items. Following the cause, not the bill, shows which items keep failing.
6. Age retention from the completion certificate. Retention aged from the invoice looks like an old receivable. Aged from completion, it becomes a chaseable amount with a date.

Illustrative example. The figures below are round numbers for illustration, not data from any company.

An EPC contractor turns over ₹500 crore a year. Its RA bills spend, on average, 20 days inside its own process (measurement, compilation, resubmission and invoicing) before an invoice exists.

• Revenue per day: ₹500 crore ÷ 365 = about ₹1.37 crore
• Cash tied up by 20 internal days: ₹1.37 crore × 20 = about ₹27.4 crore
• Removing 10 of those days: ₹1.37 crore × 10 = about ₹13.7 crore released

That cash stays released as long as the shorter cycle holds, without winning a new order.

How much cash does retention money hold back, and why is it forgotten?

Retention money is the share of each certified bill, commonly 5 to 10 per cent, that the client holds back as security until completion and the end of the defects liability period. On a finished project it is often the largest single block of trapped cash, and the one least often chased.

Retention is forgotten for system reasons: it usually has no due date in the finance system, release depends on a completion certificate rather than a date, and by then the project team has moved on. For the full mechanics, read how retention money works on Indian construction contracts.

Illustrative example. A completed contract of ₹100 crore with retention at 5 per cent:

• Total retained across all bills: ₹100 crore × 5% = ₹5 crore
• If half is released at practical completion: ₹5 crore ÷ 2 = ₹2.5 crore still held

In November 2020, the Department of Expenditure, Ministry of Finance, issued an office memorandum reducing performance security on government contracts from 5 to 10 per cent of contract value to 3 per cent, for existing contracts and tenders concluded up to 31 December 2021 (Department of Expenditure, performance security circular). It was a temporary pandemic measure, later extended to 31 March 2023. Performance security is separate from retention, but the point holds: money held as security is working capital the contractor cannot use.

Does paying subcontractors later solve the problem?

No. Paying subcontractors and vendors later lengthens days payables outstanding and improves the cash conversion cycle on paper, but it moves the problem onto the supply chain and comes back as worse rates, slower mobilisation and disputes.

There is also a legal limit for many suppliers. Under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006, a buyer must pay a micro or small enterprise supplier by the agreed date, and the agreed period cannot exceed 45 days from acceptance or deemed acceptance (MSMED Act, 2006, full text). The durable gain is on the receivable side, inside the company's own RA bill process.

How does Crestline find working capital stuck in RA bills?

Crestline is process intelligence software for EPC and construction finance teams. Crestline reads the event log an ERP already writes, read-only, rebuilds the real path each RA bill takes, and prices each delay in rupees with the step, the owner and the next move named.

On the RA bill cycle, Crestline:

• Follows each RA bill as its own case from execution to certification, keeping every rejected submission.
• Reports DSO per client and per project, from work completion as well as from the invoice date.
• Ages retention from the completion certificate, as its own line with an owner.
• Produces a weekly list of delays ranked by rupee impact, tracked until the cash comes in.

Crestline works with SAP, Oracle, Tally, Zoho, a project accounting system or a spreadsheet export, and is live in 15 days from approval. The underlying method is described on the process mining for EPC finance page.

What Crestline does not do: Crestline is not an ERP or accounting software, holds no ledger and issues no invoice. It is not project management or scheduling software, and it does not write back to source systems.

To see the RA bill cycle mapped on your own data, book a Crestline demo.

Key takeaways

• Most trapped working capital in an EPC company sits in three places: uncertified work, certified but unpaid RA bills, and retention money.
• Four of the six RA bill stages happen before an invoice exists, so standard DSO and receivables ageing do not see them.
• Measure from the date work was executed, keep every rejected submission, and weight each wait by bill value.
• Separate internal waits from external waits before calling the client.
• Age retention from the completion certificate, not the invoice, and give it a named owner.
• Paying suppliers later improves the metric, not the business, and is legally capped at 45 days for micro and small enterprise suppliers under the MSMED Act.

Frequently asked questions

What causes RA bill certification delay in Indian EPC projects?

RA bill certification delay in Indian EPC projects usually comes from disputed line items, missing supporting documents such as test reports, and variation items submitted before approval. Each resubmission restarts the client's review queue.

How do you calculate trapped working capital in construction?

Trapped working capital in construction is calculated as receivables plus inventory less payables, where receivables include unbilled work in progress and retention money, not only invoiced amounts. To find where it is stuck, multiply each open RA bill's value by the days it has waited at its current stage, measured from the date the work was executed.

Is retention money counted in working capital?

Yes. Retention money is earned revenue held by the client, so it belongs in an EPC company's working capital even when reported separately. Age it from the completion certificate, not the invoice date.

Sources

• https://doe.gov.in/circulars/performance-security
• https://www.dailyexcelsior.com/news/archive/reduction-in-performance-security-extended-till-march-31-2023
• https://wb.gov.in/acts/act_msme_msmed_act.pdf