Funding a big new contract before the first payment

Winning a big contract is one of the best days in business. It’s also, for many owners, the start of a cash crunch. Before the client pays a cent, you may need to hire staff, buy materials, hire or buy equipment and pay subcontractors. The bigger the job, the deeper the hole before the first progress payment.

Why do contracts create cash gaps?

A typical pattern looks like this:

1. Week one to four: staff start, materials are ordered, site set-up costs land.
2. End of month one: you issue your first progress claim.
3. Month two: the client processes and pays the claim — often on the 20th of the following month or later.
4. Throughout: a retention may be held back from each payment.

That can mean six to ten weeks of spending before the first meaningful income. Multiply that by a contract worth several times your normal monthly turnover, and the gap can be serious.

What does mobilisation cost?

Cost	Examples
Labour	New hires, overtime, labour-hire staff
Materials	Timber, steel, cabling, fixtures, consumables
Plant and equipment	Hire, purchase or lease of machinery and vehicles
Subcontractors	Specialist trades on their own payment terms
Site set-up	Fencing, facilities, traffic management, insurance
Compliance	Health and safety planning, consents, inspections

Which funding fits contract work?

Short-term unsecured loan. Covers the first few weeks of costs, repaid as the early progress claims are paid. Suits smaller to mid-sized contracts.

Business line of credit. Draw as costs land, repay as claims are paid. Handy for contracts with irregular claim timing.

Invoice finance. Once claims are issued, advance a portion of each one rather than waiting for the client’s payment run.

Equipment finance. If the contract needs a new excavator, truck or specialist plant, financing that separately keeps cash for labour and materials.

Property-secured funding. For large contracts or when trading history is short, a first or second mortgage over property can provide $20,000 to $5,000,000.

How can I make a contract funding application stronger?

• The signed contract and payment schedule
• Your cash flow forecast for the job — even a simple one
• Evidence you can deliver: similar past jobs, key staff, subcontractor commitments
• Recent bank statements showing how the business normally trades
• Your tax position, including whether GST and PAYE are current

To get a quick read before you sign on the dotted line, see if you qualify — there is no credit check involved at that point.

An illustrative example

An illustrative Canterbury civil contractor wins a subdivision earthworks package worth roughly three months of its normal turnover. It needs to hire two extra operators, bring in a second excavator on hire and pay for fuel and maintenance up front. The first claim goes in at the end of month one and is paid on the 20th of month two, less a retention.

A short-term facility sized to cover about eight weeks of the extra costs, repaid from the first three progress payments, would fit the job neatly. If the contractor expects more jobs of this size, a revolving facility or invoice finance would serve better over time.

Questions to ask before you sign

• What are the payment terms? Ask whether there’s flexibility for an earlier first claim or a mobilisation payment.
• What is the retention, and when is it released?
• Who pays for variations, and how quickly?
• What happens if the client’s payment run slips? Build a buffer into your funding amount.

How do you size contract funding without over-borrowing?

Work from the job’s own cash flow rather than the contract value. List each week’s expected spending — wages, materials, hire, subcontractors — then list the dates you realistically expect each payment to land, after any retention. The deepest point of the running balance is your funding need. Add a modest buffer for a client payment run that slips by a fortnight, because they often do.

It also pays to separate one-off mobilisation costs from ongoing working capital. A piece of plant you’ll keep for years is better funded on its own term through equipment finance, while labour and materials suit a shorter facility that clears as claims are paid. Splitting the two means you aren’t paying for short-term money long after the job is finished, and it keeps the main facility small enough to approve quickly.

Finally, keep your tax obligations in view. A large contract will lift your GST payable once claims are paid, and wages for extra staff increase PAYE and KiwiSaver deductions. Plan for those in the same forecast so a successful job doesn’t create a tax squeeze a few months later.

Start the job with cash in hand

A big contract should be a win, not a worry. Tell us the contract value, the start date and roughly what mobilisation will cost. There’s no credit check when you first enquire, your details aren’t passed around a long list of lenders, and someone will call you to work through the fastest way to fund it.

Accurate answers on the form — the amount, what it’s for and whether property is available — help us match you properly first time. Talk to us about contract funding.