For an engineering firm, technology business, medical supplier, specialist manufacturer or project-based B2B company in Clayton, in Melbourne’s south-east, the lead-up to the final quarter can create a cashflow issue that looks quite different from simply needing more Christmas stock.
Clayton sits within a major health, research, technology and employment precinct, alongside substantial commercial and industrial activity.
For many businesses operating in that environment, revenue may come from projects, contracts, specialist orders or staged work rather than customers paying immediately across a counter.
By 23 September, Christmas is still well ahead.
But projects being commissioned now may run through October and November, with milestone payments or final invoices falling into December or January.
That makes this a useful time to ask:
How much will the business need to spend delivering upcoming projects before the corresponding client payments arrive?
A valuable project can require cash long before it generates cash
Project-based businesses can have healthy order books while still carrying substantial working capital.
A new project may require:
specialist components
materials
technical staff
contractors
software or licences
testing
freight
equipment
prototypes
compliance work
travel or installation expenses
Those costs can start almost immediately.
The client payment may depend on a milestone that is still weeks away.
Even when the project has a strong margin, the business needs enough cash to reach that milestone.
Look beyond the total contract value
Suppose a business wins a $300,000 project.
The headline number sounds excellent.
But perhaps the payment structure is:
10 per cent on commencement
40 per cent after the first major milestone
40 per cent on delivery
10 per cent after final acceptance
Meanwhile, the business may need to commit $100,000 or more to people, suppliers and materials before reaching the first substantial payment point.
The relevant question is therefore not simply:
How much is the contract worth?
It is:
What is the maximum amount of our own cash likely to be tied up before the next milestone payment?
That figure tells the business much more about the likely working capital requirement.
Milestone billing can create uneven cashflow
A business may be profitable across an entire project while experiencing very uneven cashflow during delivery.
Some weeks contain significant customer receipts.
Others contain mostly expenses.
That can make a business feel financially comfortable immediately after a milestone payment and surprisingly tight several weeks later.
A project cashflow forecast should therefore map:
expected project costs
supplier payment dates
payroll
milestone completion dates
invoice dates
client approval periods
expected payment dates
Looking at the timing week by week can reveal pressure that a total project budget does not show.
Technical staff need paying whether the client has approved the milestone or not
For engineering, technology and specialist service businesses, people may be one of the largest project costs.
Engineers, developers, technicians, project managers, researchers and support staff are generally paid weekly or fortnightly.
A client might pay only when a stage is complete.
If a project runs for eight weeks before the next billing milestone, the business may fund several payroll cycles before receiving additional cash.
That becomes more significant when several projects overlap.
A business does not only need enough working capital for one project.
It may need enough to support several teams working across several contracts at the same time.
Specialist suppliers may want payment earlier than the client
Technical and medical businesses can also rely on specialist components, equipment or materials.
A supplier may require:
payment upfront
a deposit
payment before dispatch
short account terms
minimum order quantities
The client may operate on much longer terms.
That mismatch can leave the business carrying the difference.
Before committing to a larger order, compare:
When must the supplier be paid?
with:
When is the client expected to pay us?
The days between those events are part of the working capital requirement.
Prototypes and development work can tie up money before there is a finished product
Some Clayton businesses may be involved in technology, research, product development or specialist manufacturing where significant work occurs before anything can be delivered.
There may be prototype costs.
Testing.
Specialist materials.
Tooling.
External consultants.
Certification or compliance expenses.
The eventual commercial value may be strong, but the development stage can absorb cash.
This is another reason to separate project profitability from project cashflow.
A profitable project can still require considerable funding while it is being developed.
Medical and specialist suppliers can face an inventory-plus-debtor gap
A supplier servicing medical, health, research or other commercial organisations may experience both sides of the working capital cycle.
Stock or equipment needs to be purchased first.
The supplier pays for it.
The customer receives the goods.
An invoice is issued.
The customer then pays according to its own commercial terms.
The business may therefore have money tied up first in inventory and then in receivables.
If order values increase over the final quarter, the dollar amount tied up can increase quickly.
Purchase orders are valuable, but they do not pay today’s bills
A confirmed purchase order can provide confidence that work is coming.
It does not necessarily provide cash.
The business may still need to purchase materials, allocate staff and deliver the order before it can invoice.
A large order can therefore strengthen the forward pipeline while simultaneously increasing the amount of working capital required today.
When a larger purchase order arrives, it can help to calculate the cost of fulfilling it before automatically accepting the opportunity.
Ask whether an upfront payment is commercially possible
Additional finance is not always the first or only way to improve project cashflow.
Depending on the customer and project, the business may be able to negotiate:
commencement deposits
upfront material payments
staged billing
more frequent milestones
progress payments
shorter payment terms
A $200,000 project funded under four sensible stages can create a very different cashflow requirement from the same project invoiced entirely at completion.
Payment structure is part of project pricing.
If the business is effectively funding a customer’s project for several months, that cost deserves consideration.
Approval periods should be included in the forecast
One detail that can easily be overlooked is the time between completing a milestone and actually being allowed to invoice it.
A client may need to:
inspect the work
approve testing
sign off deliverables
confirm timesheets
accept documentation
issue a completion certificate
Then the invoice is raised.
Only then might the customer’s 30-day payment terms begin.
A milestone completed on 15 November may therefore not produce cash on 15 December.
If approval takes another week or two, the actual receipt could move much later.
The forecast should reflect the real process.
Several project delays can compound at the same time
One delayed milestone may be manageable.
Several delayed customer approvals occurring together can create a much larger cashflow issue.
This is particularly relevant for businesses operating multiple projects.
The business may have staff committed across all of them.
Suppliers still need paying.
Overheads continue.
But several planned receipts move into the following month.
When modelling the final quarter, it can be useful to test what happens if one or two important payments arrive later than expected.
Would the business still have enough cash to continue comfortably?
Debtor finance may be relevant once invoices exist
Once eligible B2B work has been completed and valid commercial invoices have been issued, debtor or invoice finance may be worth considering in some circumstances.
Depending on the facility, the business may be able to access part of the value of qualifying receivables rather than waiting for customers to complete their normal payment cycle.
Lenders may consider:
debtor quality
invoice age
payment history
concentration
disputes or credits
underlying goods or services
For a growing project-based business, this may be relevant when more revenue is being generated but more cash is also accumulating in accounts receivable.
The pre-invoice stage may need another solution
The important limitation is timing.
If the business needs money to pay staff and suppliers before it reaches an invoicing milestone, there may not yet be a debtor to finance.
That earlier requirement may instead involve:
existing cash
an overdraft
line of credit
working capital finance
another commercial funding structure
The appropriate solution depends on the business and circumstances.
The important step is identifying exactly when the funding gap starts.
Equipment can create a separate funding decision
A new contract may require specialist equipment, testing machinery, vehicles or other assets.
The business might have enough cash to purchase the asset outright.
But that cash may also be needed for payroll and suppliers.
Depending on the asset, asset finance may be worth comparing so the useful life of the equipment is funded separately from shorter-term project costs.
The decision should consider both:
What is the cost of financing the equipment?
and
What happens to working capital if we pay cash?
A business can own the equipment it needs and still struggle to fund the people and materials required to use it.
Imported components can lengthen the cash cycle
Some specialist businesses rely on overseas suppliers.
That may mean longer lead times and earlier commitments.
Supplier deposits may be required.
Balances may need to be paid before shipment.
Freight and other landed costs can add to the total.
Then the component is incorporated into a product or project before the client eventually pays.
That entire period consumes working capital.
Where eligible supplier purchases are creating the gap, trade finance may be worth investigating depending on the lender and transaction.
Year-end timing can make milestone dates more important
By late September, it is worth identifying projects whose payment milestones may fall close to Christmas and New Year.
Not because payment delays are happening now.
They are not.
The value of planning this early is recognising which future invoices could be exposed to customer shutdowns, staff leave or slower approval processes.
If a major payment is expected in the final week of December, ask:
Does the customer normally operate then?
Who approves the milestone?
Will that person be available?
Is the accounts team operating?
Could the invoice realistically move into January?
Testing that possibility now can produce a much more useful forecast.
Do not assume an invoice due in December will fund December expenses
A business may forecast a major December receipt and rely on it to meet:
payroll
suppliers
rent
tax
finance repayments
other project costs
That becomes risky if the payment is delayed.
Where a single receipt is critical to the cashflow plan, it can be useful to model what happens if it arrives one or two weeks later.
If the business immediately becomes tight, that is useful information to know before December arrives.
January may contain the cash generated by November’s work
A project delivered during November may not produce its final cash receipt until January.
That means the Christmas cashflow cycle for a project business can extend well into the new year.
At the same time:
employees return from leave
payroll continues
new projects may commence
suppliers need paying
software and premises costs continue
tax and finance commitments remain
The business may therefore be funding the next round of work while still waiting for the previous round to be paid.
The forecast needs to continue until receipts have caught up.
Late September is the time to identify the projects most likely to create a gap
The business does not need to forecast every small invoice individually.
Start with the largest projects and customers.
Which projects require the most upfront expenditure?
Which have the longest payment cycles?
Which customers pay most slowly?
Which milestones fall around December?
Which suppliers require early payment?
A relatively small number of projects may account for most of the working capital requirement.
That is where the planning effort can be concentrated first.
What information may help if finance is being considered?
Lender requirements vary, but useful information may include:
recent business bank statements
financial statements or management accounts
contracts
purchase orders
project budgets
milestone schedules
supplier quotations
payroll requirements
debtor ledger
creditor ledger
customer payment terms
existing finance
ATO position
amount required
intended use
expected timing
source of repayment
A clear project timeline can help explain why the funding is required and when the business expects the cash to return.
Five questions Clayton businesses may ask while planning the final quarter
Can working capital finance help us fund a project before the next milestone payment?
Potentially. Depending on the lender, business and circumstances, commercial finance may be considered for eligible payroll, supplier and operating costs associated with project delivery.
What if we have a purchase order but cannot invoice until delivery?
The purchase order may demonstrate future work, but the business still needs to fund delivery. Existing cash, supplier terms and relevant commercial finance options may need to be considered.
Can debtor finance help with project invoices?
Potentially, once qualifying commercial invoices exist. The lender will assess the receivable and underlying transaction, and some project or milestone arrangements may require closer review.
What if specialist equipment is required for the project?
Eligible equipment may be considered separately under asset finance, helping the business preserve working capital for shorter-term project costs where appropriate.
Is 23 September too early to consider invoices that may fall across Christmas?
No. If current or upcoming projects are expected to run through October and November, it is reasonable to identify now which milestone and payment dates could eventually fall into December or January.
Fund the journey between winning the project and collecting the payment
For technology, engineering, specialist manufacturing, medical-supply and other project-based businesses in Clayton VIC, a strong pipeline can create valuable growth.
It can also require the business to fund people, suppliers, equipment and project delivery well before the customer payment is collected.
Thrive Broking can help Clayton businesses review that cashflow cycle and compare working capital, debtor finance, trade finance, asset finance and other commercial funding options across our lender panel where appropriate.
On 23 September, this remains a planning exercise.
The objective is to identify which upcoming projects could absorb the most working capital and make sure the business has a plan before those costs begin accumulating.
A Broker’s Observation
With a project business, I would not only ask whether the contract makes money.
I would draw a timeline.
When does the first dollar leave?
When are the largest project costs incurred?
When can each milestone be invoiced?
When does the client realistically pay?
The gap between those points can be where a successful business needs the most working capital.
A $500,000 project might have an excellent margin, but if the business has to carry $180,000 of wages, suppliers and materials before the next payment milestone, that $180,000 deserves to be planned just as carefully as the project itself.