For a trade, civil, construction-support or service business working around Beveridge and Melbourne’s northern growth corridor, September can be a good time to look at the work that may be coming rather than only the jobs already underway.
The Christmas period is still ahead.
But projects expected to start in October or November may already be quoted, negotiated or sitting in the pipeline.
A growing contractor might be considering another crew.
A civil business may need materials and equipment for a new job.
A supplier could be preparing for larger orders from builders and trades.
A transport operator may expect additional movements as project activity increases.
The opportunity can be attractive.
The important question is:
How much money will the business need to spend before the first payment from that additional work actually arrives?
For businesses supporting a growing area, winning work and funding work are two different things.
A full pipeline does not automatically mean strong cashflow
A business can have months of work ahead and still experience tight cashflow.
The reason is timing.
Jobs may have been won.
Purchase orders may have been received.
Customers may be committed.
But the business still needs to fund delivery.
That might involve:
materials
wages
subcontractors
fuel
equipment hire
vehicle costs
supplier deposits
insurance
site costs
accommodation or travel
compliance requirements
The customer payment may come later.
Sometimes much later.
The value of the pipeline is important.
So is the amount of cash required to turn that pipeline into completed, paid work.
Construction growth can create a working capital requirement before the first day on site
A contractor preparing for a new project may start spending before work physically begins.
Materials could need to be secured.
Employees may need to be rostered.
Equipment might require servicing.
Subcontractors may be booked.
Site-specific items may need to be purchased.
Some suppliers may want deposits.
The business is already committing money even though the customer has not yet received an invoice.
That period is easy to underestimate.
Before accepting several new jobs at once, it can help to calculate how much pre-start expenditure each project requires.
Then look at the projects together.
Three manageable jobs can become one significant working capital requirement if they all commence within several weeks of each other.
Materials can absorb cash well before a progress claim
Material purchases can be one of the largest early costs.
A builder, civil contractor or trade business may need to purchase:
concrete products
steel
timber
electrical materials
plumbing supplies
drainage products
landscaping materials
fencing
consumables
specialised components
Supplier terms vary.
An established account may provide time to pay.
Another supplier may require payment upfront.
A larger-than-usual order might exceed the business’s existing credit limit.
That could mean paying a greater proportion in cash.
The business should know when those payments fall due and how they compare with the expected timing of customer deposits, progress claims or invoices.
Progress claims do not always equal immediate cash
A project may allow monthly progress claims.
That sounds helpful.
But the cashflow timeline can still be longer than expected.
The work needs to be completed.
A claim is prepared.
Supporting documents may be required.
The claim may need assessment or approval.
An invoice is then processed.
Payment terms begin.
The customer ultimately releases the funds.
There can be several weeks between completing the work and receiving the money.
If the business is funding payroll and suppliers throughout that period, the amount tied up can grow quickly.
When planning the job, forecast the likely payment date rather than simply the progress claim date.
Labour has to be funded continuously
Employees need to be paid regardless of where a project sits in the customer’s payment cycle.
For a business adding another crew before the end of the year, payroll can become one of the largest additional commitments.
Suppose four additional employees add $10,000 a week to the total employment cost.
If the first customer receipt relating to their work arrives six weeks later, that represents around $60,000 of additional cash outflow before considering materials, fuel, vehicles or subcontractors.
That does not mean employing the additional people is the wrong decision.
It means their cost belongs in the mobilisation budget.
The same applies to overtime and casual labour.
Subcontractors can create an even shorter payment cycle
Subcontractors may expect to be paid faster than the end customer pays the principal business.
A subcontractor might require seven or 14-day terms.
The customer may pay the business on 30-day terms after a monthly claim is approved.
That puts the business in the middle.
If subcontractor usage increases later in the year, estimate:
expected subcontractor cost
payment terms
progress claim dates
customer approval time
likely customer payment date
The difference between those dates is part of the working capital requirement.
Civil and earthmoving businesses also need to think about equipment utilisation
A growing civil or earthmoving contractor may already own machinery capable of doing the work.
But increased utilisation brings additional costs.
Fuel consumption rises.
Servicing intervals arrive sooner.
Tyres or tracks may require replacement.
Repairs can become more frequent.
Transport between sites may increase.
Operators may work longer hours.
The machine may already be financed, but the cost of running it still needs to be funded before the customer pays.
This is why the existing asset base and the working capital requirement should be assessed together.
Having enough machinery to complete the contract is only part of the equation.
What if another machine or vehicle is required?
New work may create a need for an additional truck, excavator, trailer, ute or other equipment.
That introduces another funding decision.
Using existing cash to purchase the asset could reduce the amount available for wages, materials and suppliers.
Depending on the asset and circumstances, asset finance may allow the business to spread the cost of an eligible long-term asset while retaining more cash for day-to-day operations.
That does not mean borrowing is automatically preferable.
The important comparison is between:
the cost of financing the asset
and
the effect of using a large amount of business cash upfront.
A business needs enough capital not only to own the equipment but to put it to work.
Suppliers supporting construction growth can face the opposite side of the same problem
The working capital challenge is not limited to the contractors on site.
A supplier servicing builders, landscapers, civil contractors or trades may also need to prepare for increased demand.
That can mean ordering more stock before customers request it.
The supplier pays for the inventory.
The stock arrives.
Customers purchase on account.
The supplier may then wait another 30 or 45 days for payment.
More demand can therefore create a larger cash requirement at both ends:
more money tied up in inventory and more money tied up in debtors.
Before increasing stock, calculate the complete cycle from supplier payment through to customer receipt.
Transport operators can also be funding project activity
Development and construction activity can generate work for transport businesses.
Equipment needs moving.
Materials need delivering.
Freight volumes may increase.
Additional work can bring additional:
fuel
wages
subcontractors
tolls
repairs
maintenance
Those costs occur while the customer may still be paying on commercial account terms.
A transport operator considering new project-related work should calculate the weekly operating cost of the contract as well as the expected revenue.
A profitable contract can still require substantial working capital during delivery.
New contracts should be assessed for cashflow as well as margin
A business owner will usually assess whether a new job is profitable.
That is essential.
But profit and liquidity are not the same.
Imagine a $300,000 project expected to generate a healthy margin.
The business may need to spend $120,000 before receiving its first progress payment.
If the business only has $140,000 of freely available working cash, accepting the project could leave very little room for everything else.
The project may be attractive.
The funding structure may need attention.
This is why one of the most useful questions before accepting a larger job is:
What is the maximum amount of our cash likely to be tied up at any one time?
Could customer deposits reduce the gap?
Borrowing is not the only way to manage working capital.
Where commercially appropriate, businesses may be able to negotiate:
deposits
upfront material payments
staged billing
more frequent progress claims
shorter payment terms
milestone payments
Even changing the timing by one or two weeks can reduce the amount the business needs to fund itself.
Before accepting standard customer terms, consider how much cash those terms require the business to provide.
The customer may still receive reasonable commercial terms without the contractor carrying the entire project for an extended period.
Existing supplier terms deserve a review too
The same applies on the purchasing side.
Could suppliers provide longer payment terms?
Could larger orders qualify for an account rather than upfront payment?
Could purchases be staged rather than delivered all at once?
Could several suppliers be used instead of one large early purchase?
Working capital planning should look at both money coming in and money going out.
Improving either side can reduce the funding gap.
Debtor finance may become relevant after the work is invoiced
Once work has been completed and eligible commercial invoices exist, debtor or invoice finance may be worth considering for some B2B businesses.
A facility may provide earlier access to part of the value of qualifying receivables rather than requiring the business to wait for the customer’s normal payment cycle.
Lenders may assess:
the debtor ledger
customer quality
payment history
invoice age
debtor concentration
disputes
credits
underlying transactions
This can be relevant where the business is doing profitable work but a growing amount of cash is sitting in outstanding invoices.
The period before invoicing may need another solution
A debtor facility does not necessarily solve the costs that arise before the work is performed or invoiced.
The business may need to fund materials, employees and mobilisation first.
Depending on the circumstances, options may include existing reserves, an overdraft, working capital finance, a line of credit or another commercial funding structure.
This is why the first step should be identifying exactly when the funding gap begins.
A business may need one form of support during mobilisation and another once receivables have been created.
September is still the planning stage
By 21 September, there is no reason to write as though the Christmas rush is already underway.
For many businesses, this is still the period where upcoming work is being assessed.
Quotes are being issued.
Contracts are being negotiated.
Supplier requirements are being estimated.
Staffing decisions may still be ahead.
That makes it an appropriate time to run the numbers before the commitments become fixed.
The business may discover it already has enough working capital.
If so, excellent.
If not, there is still time to consider what changes could be made.
Model the job if the customer pays late
A useful cashflow forecast should not depend on every payment arriving at the earliest possible moment.
Test what happens if a major customer pays a week later.
Or two weeks later.
Would payroll still be comfortable?
Could suppliers still be paid?
Would another job have to be delayed?
Would the overdraft reach its limit?
A funding plan that only works if every invoice is paid exactly on time may not provide enough room for normal business conditions.
Remember that December work can turn into January cash
Projects completed before Christmas do not necessarily produce cash before Christmas.
A progress claim submitted in December might not be paid until January.
Some customer offices close.
Accounts teams take leave.
Approval processes can slow.
The business still needs to cover payroll, finance repayments, fuel, rent and supplier commitments during that period.
That is why the forecast should extend past the completion of the work and into the point where customer payments are realistically expected to resume.
Is the additional funding temporary?
A defined growth opportunity should usually have a clear reason for the additional cash requirement.
The business may need to fund mobilisation and then expect progress payments to restore its working capital.
That is different from an ongoing situation where the business needs new borrowing every month simply to meet ordinary expenses.
Before adding debt, consider whether the proposed facility is funding:
a temporary gap created by profitable work
or
a recurring shortage in the underlying business.
If it is the second, a broader review of margins, pricing, payment terms, existing debt and operating costs may be required.
What information can help if funding is being considered?
Depending on the lender and type of finance, useful information may include:
recent business bank statements
financial statements or management accounts
current contracts and pipeline
purchase orders
project budgets
estimated materials
payroll requirements
subcontractor costs
debtor ledger
creditor ledger
customer payment terms
supplier terms
existing finance commitments
ATO position
amount required
purpose of the funding
expected timing
anticipated source of repayment
Being able to show how the proposed work creates the temporary requirement can help frame the finance discussion more clearly.
Five questions Beveridge businesses may ask while planning upcoming work
Can working capital finance help fund a new construction or service contract?
Potentially. Depending on the business, lender and circumstances, commercial finance may be considered for eligible materials, payroll, suppliers and other operating costs associated with delivering new work.
What if the contract requires materials before we receive any customer payment?
That cost should be included in the project’s working capital requirement. Supplier terms, customer deposits and finance options may all be worth considering.
Can finance help if we need another truck or machine?
Eligible vehicles and equipment may be considered under asset finance, while separate working capital may be retained for wages, fuel, materials and suppliers.
Can unpaid commercial invoices help us access funding?
For eligible B2B businesses, debtor or invoice finance may be available against qualifying receivables once valid invoices have been raised.
Is 21 September too early to plan cashflow for work expected before Christmas?
No. If the business is already quoting, negotiating or preparing for work expected during October, November or December, this is a useful stage to estimate how much cash may be required before those jobs begin.
Growth creates opportunity, but the work still has to be funded
For businesses operating around Beveridge VIC and the northern growth corridor, continued development can create opportunities for trades, contractors, civil businesses, suppliers, transport operators and commercial services.
But an increasing pipeline can also mean more money committed to wages, materials, equipment and subcontractors before customer receipts arrive.
Thrive Broking can help Beveridge businesses review that funding cycle and compare working capital, debtor finance, asset finance and other commercial finance options across our lender panel where appropriate.
The objective in September is not to assume the business will face a Christmas cashflow problem.
It is to know whether the business can comfortably fund the work it hopes to win over the months ahead.
A Broker’s Observation
When a business tells me it has a strong pipeline, that is good information.
But I would want one more number.
How much cash will be tied up when the pipeline is at its busiest?
A business might have $1 million of work ahead and still need $200,000 or more to carry materials, employees and subcontractors while it waits for progress claims and invoices to be paid.
That does not make the growth unattractive.
It simply means the funding requirement deserves to be planned alongside the sales opportunity.