A business can finish a profitable job and still have a cash-flow problem before the customer pays.
The work is complete. The invoice has been issued. The margin is there.
But subcontractors expect payment now.
That timing mismatch can become uncomfortable for a Townsville business that is taking on more work, running several jobs at once or dealing with customers who pay on 30-day or 60-day terms.
The more successful the business becomes, the more money it may need to carry between completing the work and collecting the revenue.
Subcontractors cannot always wait for your customer
Many businesses operate with two very different payment cycles.
Customers may pay after:
30 days
45 days
60 days
a progress claim is approved
completion documents are signed
internal accounts processes are finished
Subcontractors may expect payment much sooner.
Some may invoice weekly.
Others may require payment within seven or fourteen days.
That creates a funding gap that the business has to absorb.
If one job is involved, the gap may be manageable.
If several projects overlap, the amount can increase quickly.
More work can mean more cash tied up
Imagine a business has three active projects.
Each one requires:
subcontractor payments
materials
transport
fuel
supervision
administrative support
The business invoices $220,000 across the three jobs.
But the customers will not pay for another month.
In the meantime, $110,000 of subcontractor and supplier costs need to leave the account.
The jobs may all be profitable.
The business may have $220,000 of legitimate receivables.
But neither of those facts creates the cash needed to meet today’s obligations.
This is where growth can place pressure on a business that looks financially healthy on paper.
Delaying subcontractors can create a different commercial cost
When cash is tight, paying subcontractors late can appear to be the easiest temporary solution.
But doing it repeatedly can have consequences.
Reliable subcontractors may:
prioritise other customers
ask for shorter payment terms
require deposits
refuse additional work
increase pricing to compensate for payment risk
become unwilling to commit labour when the business is busiest
A strong subcontractor relationship can be difficult to replace.
For businesses that depend on skilled external labour, protecting those relationships may be commercially important.
That makes the timing of customer receipts more than an accounting issue.
It can affect the business’s ability to deliver future work.
The debtor ledger may already contain the cash the business needs
Where customers are established businesses and invoices meet lender requirements, invoice or debtor finance may be worth considering.
The basic problem is straightforward.
The business has already earned the revenue.
The money is simply sitting in accounts receivable.
Invoice finance may allow eligible invoices to be used to access part of that cash earlier, rather than waiting for customers to reach their normal payment date.
That can help the business align incoming cash more closely with outgoing costs such as subcontractors, wages and suppliers.
This is different from taking out a fixed loan that has no direct connection to the invoices creating the gap.
Why invoice finance can become more relevant as turnover grows
Suppose a business invoices $100,000 a month on 30-day terms.
At steady turnover, it may continuously carry around one month’s sales in accounts receivable.
If monthly invoicing grows to $200,000, the amount trapped in the debtor ledger can also increase substantially.
The business may therefore require more working capital simply because it has become busier.
This is one of the reasons growing businesses sometimes feel poorer despite producing higher revenue.
The money has not disappeared.
More of it is sitting between the invoice date and the customer payment date.
Customer payment terms are part of the pricing decision
Long customer terms can have a cost.
If a customer wants 60 days to pay, the business may have to fund labour and materials for two months before receiving the cash.
That working capital requirement should be considered when pricing the job.
A contract with an attractive headline margin may be less attractive once the cost of carrying the receivable is included.
Before taking on larger work, businesses can ask:
How much must we spend before invoicing?
When can we issue the invoice?
How long will the customer take to pay?
Can we negotiate a deposit?
Can we use progress claims?
Can materials be billed separately?
How much cash will be tied up at the busiest point?
Those questions can reveal whether the contract fits the current cash position.
Progress claims can reduce the amount that needs to be funded
External finance is not the only way to reduce the gap.
Where the contract allows it, a business may be able to negotiate more favourable billing arrangements.
That might include:
an upfront deposit
milestone payments
weekly or fortnightly invoicing
progress claims
separate reimbursement of materials
shorter customer payment terms
Even a modest improvement can reduce the amount of working capital required.
For example, moving from one invoice at completion to three progress claims can materially reduce how much labour and materials the business must carry at any one time.
Finance can then be considered for the remaining gap rather than the entire project.
Materials can magnify the subcontractor problem
Some jobs require a business to fund both labour and materials before payment.
That can create a double cash requirement.
A business may pay $40,000 in materials and another $35,000 in subcontractors before issuing an $110,000 customer invoice.
If that invoice is then paid 45 days later, $75,000 may be tied up for a considerable period.
Add a second job and the exposure can double.
This is why it can be useful to calculate the peak cash requirement across all active work rather than assess jobs independently.
Two profitable contracts running at the same time can place more pressure on cash than one larger contract completed sequentially.
A general working capital facility may suit some businesses better
Invoice finance will not be the right fit for every business.
The customer base, invoice type, payment arrangements and concentration of debtors can all affect suitability.
A business may also need money before it is able to issue an invoice.
For example, it may have to purchase materials or pay subcontractors at the beginning of a job.
In those circumstances, working capital finance may be another option to consider.
The structure should reflect where in the cash cycle the pressure occurs.
If the problem begins before invoicing, one type of facility may be appropriate.
If the problem is predominantly the wait after invoicing, another may make more sense.
Do not use a credit card to hide a growing debtor gap
A common workaround is to move other expenses onto business credit cards so cash remains available for subcontractors.
That can work temporarily.
But if customer terms remain long and turnover keeps increasing, the card balance can grow each month.
Eventually the business has:
the original debtor gap
a large card balance
interest or fees
less emergency credit available
The business has not corrected the mismatch.
It has simply financed it indirectly.
Where the debtor balance is consistently creating pressure, it may be worth addressing that directly.
December invoices can take longer to become January cash
Year-end timing can make the gap more noticeable.
A business may complete a significant amount of work in November or December.
Subcontractors are paid before Christmas.
Customer invoices are raised.
Then customer accounts teams slow down or close over the holiday period.
An invoice expected late in December may not be paid until January.
Another may move into February.
The business still needs to meet wages, rent, supplier accounts, tax obligations and other expenses during that period.
For businesses carrying substantial receivables into the end of the year, forecasting actual expected payment dates rather than invoice due dates can provide a more realistic picture.
Growth should not depend on making subcontractors finance the business
If a Townsville business has enough profitable work but keeps struggling to pay subcontractors while waiting for customers, the problem may lie in the timing of its cash-conversion cycle.
Thrive Broking can review the debtor position, customer payment terms, subcontractor commitments and broader working capital requirement.
Depending on the business and invoices involved, options may include invoice finance, debtor finance or a working capital facility.
The aim is not simply to find money for this week’s subcontractor payments.
It is to help build a finance structure that allows the business to take on worthwhile work without relying on subcontractors to carry the cost until customers eventually pay.