Won a big contract? Fund the start-up cash the smart way

Winning a big contract feels like the finish line. Cash-wise, it’s the starting gun. Materials, wages, subcontractors and equipment hire all have to be paid long before the client’s first payment lands, and the bigger the contract, the deeper that early dip. Remixing contract funding is about making the dip shallower and shorter before you decide how much to borrow.

Why is the contract value the wrong number to fund?

A $600,000 contract doesn’t need $600,000 of funding. It needs enough cash to get through the worst point of the contract’s cash cycle — usually somewhere between mobilisation and the second or third progress payment. That peak could be a fraction of the contract value, or it could be surprisingly large if payment terms are long and retentions are high.

Draw the contract as a weekly cash curve: money out for labour, materials, plant and subcontractors; money in from deposits and progress claims. business.govt.nz recommends forecasting weekly or even daily to stay on top of day-to-day cash, and for contract work that’s exactly the right level of detail. The lowest point on the curve is your funding need.

Which pieces shrink the contract cash dip?

Piece	How it helps	Watch out for
Mobilisation or deposit payment	Cash before work starts	Ask at tender stage, not after
Milestone or monthly billing	Shorter wait between work and payment	Clear milestones avoid disputes
Supplier terms on materials	Materials paid after the client pays you	Supplier credit limits
Subcontractor payment terms	Matched to your own payment cycle	Must be fair and agreed
Invoice funding	Advance against progress claims	Client must be creditworthy
Equipment hire	No upfront purchase	Hire costs add up over a long job
Line of credit	Covers the remaining dip	Discipline to repay as claims are paid

Negotiate the payment terms, not just the price

The biggest funding lever is in the contract itself. Ask for a mobilisation payment to cover set-up and early materials, and for billing at frequent, clearly defined milestones. business.govt.nz suggests splitting larger invoices into smaller payments for longer projects to improve cash flow — that’s exactly what milestone billing does. These are the contract version of customer deposits.

Make suppliers part of the plan

Talk to your main materials supplier as soon as you win the work. A temporary credit limit increase or extended terms for the contract’s duration can mean materials are paid after your client’s progress payment arrives. See supplier trade credit.

Fund the claims, not the whole job

Where your client is a creditworthy business or public body, invoice funding can advance most of each progress claim when it’s issued. The facility grows with the job and shrinks as it winds down.

How do retentions change the picture?

In construction, part of each progress payment is often held back as a retention until the work is complete and defects are remedied. building.govt.nz explains that under the Construction Contracts Act 2002, retention money must be held on trust, kept separate and used only to fix a subcontractor’s non-performance. That protects you, but it doesn’t make the cash arrive sooner. Model retentions in your cash curve — on a long job, they can add up to a meaningful amount you won’t see until the end.

Illustrative mix: a Wellington commercial painting contract

Illustrative only; no real business.

A painting and decorating company in Wellington wins a $480,000 commercial contract over five months. Unmanaged, its cash curve bottoms out at about –$140,000 in month two.

• Mobilisation payment of 10%: $48,000.
• Monthly progress claims instead of the client’s proposed two-monthly billing.
• Paint supplier extends terms for the contract: about $35,000 of materials shift later.
• Invoice funding on progress claims to the head contractor.
• A line of credit of about $40,000 covers the remaining dip and is repaid as claims are paid.

The deepest point falls from $140,000 to roughly $40,000. If you’ve just won work and want the remaining dip checked by a real person, start an enquiry here.

When is a loan the right piece for a contract?

A short facility makes sense when the remaining dip is defined, the client and payment schedule are solid, and the margin on the job comfortably covers the cost of the funding. It’s riskier when the contract is outside your usual scale, the client’s payment record is unknown, or the margin is thin. Run it through the repayment load test with a late payment or two built in. If the contract also needs more people, the new hires remix covers that side.

What should you check before signing a big contract?

Funding is easier when the contract is built for it. Before you sign:

• Payment terms: how often you can claim, how quickly the client must pay, and what happens if they dispute a claim.
• Retentions: the percentage held back, when it’s released and how it’s held.
• Variations: how extra work is priced and approved, so you’re not funding scope creep.
• Liquidated damages: penalties for delay can turn a profitable job into a costly one.
• Client strength: a quick look at the client’s track record with subcontractors and suppliers.
• Your capacity: whether the job will crowd out the smaller, faster-paying work that keeps your cash flow steady.

Lenders and invoice funders will look at many of the same points, so tidy contract terms make the finance piece simpler too.

Ready to fund the contract dip?

Get the payment terms, supplier support and invoice timing sorted, then measure the dip that’s left. If finance is the right piece, tell us about the contract — value, timeline, client and payment terms. There’s no credit check to start, your enquiry isn’t blasted to a list of lenders, and a real person will ring to talk it through. Honest figures on the form mean we can suggest the right route first time.