Late September can be an interesting point for a growing business.
The Christmas rush is still ahead, but contracts being quoted now, projects starting in October and November, and customer commitments for the final quarter can already influence how much cash the business will need over the next few months.
For a construction, trade, maintenance or commercial service business in Craigieburn, in Melbourne’s north, the challenge may not be finding work.
It may be funding the period between winning the work and getting paid for it.
A new contract might require additional employees, materials, equipment, subcontractors, fuel or supplier deposits before the first invoice can even be raised.
That makes one question particularly useful:
If we win more work before the end of the year, can we afford to mobilise it?
Winning the contract is only the beginning
Business owners understandably focus heavily on winning work.
What is the contract worth?
What margin should it generate?
How long will it run?
Those questions matter.
But there is another figure worth calculating before the business commits:
How much cash needs to leave before the first customer payment arrives?
A commercial contract might require:
materials
supplier deposits
wages
subcontractors
vehicle costs
fuel
equipment hire
insurance
site establishment
uniforms or safety equipment
administration and compliance costs
Some of these expenses may arise weeks before the business can invoice the customer.
The contract can be profitable and still place considerable pressure on working capital at the beginning.
Mobilisation can create the largest gap
The period immediately before and after a new job begins can be particularly cash-intensive.
A contractor may need to organise employees and subcontractors before going to site.
Materials may need to be ordered.
Vehicles and equipment may require servicing.
Site-specific equipment may need to be purchased or hired.
Suppliers may require deposits.
Meanwhile, the customer has not paid anything yet.
In some cases, the business has not even performed enough work to issue its first invoice.
That means cash is flowing in only one direction.
For businesses expecting new work over the coming months, late September is a sensible time to estimate what that mobilisation period could require.
Work out when the first real customer payment arrives
A contract commencement date is not the same as a payment date.
Suppose a project begins on 1 November.
The business works throughout November.
It raises its first progress claim at month-end.
The customer takes several days to approve the claim.
An invoice is then issued.
The customer has 30-day terms.
The business could be well into December or even January before the first significant payment arrives.
During that period, wages, subcontractors, suppliers and other operating expenses still need to be funded.
This is why the first customer payment date should be part of the contract assessment.
Do not just ask when the job starts.
Ask:
When does the money actually reach our account?
Several new jobs can overlap
One new contract may be manageable from existing cash.
Three contracts commencing within several weeks of each other can look very different.
A growing trade or commercial service business may find itself funding materials and labour across several jobs simultaneously.
One job may be waiting for a progress claim.
Another may have just started.
A third may require materials to be ordered next week.
Each project can be profitable individually.
Together, they can absorb a large amount of working capital.
This is why an expanding pipeline should be converted into a cashflow forecast rather than considered only as future revenue.
Materials can be paid for well before the client pays
Construction and trade businesses often need materials early in the job.
Depending on the supplier relationship, payment may be:
upfront
on delivery
seven days
30 days
subject to a credit limit
A business that wins substantially more work may also exceed its normal supplier limits.
That can mean a larger portion of materials needs to be paid for immediately.
The business should look at its expected material purchases across all upcoming projects and compare those payments with expected progress claims and customer receipts.
The question is not simply whether the business can pay the supplier today.
It is whether enough cash remains after doing so to continue funding the rest of the work.
Subcontractors may need paying before the principal does
Subcontractors can create another timing mismatch.
A subcontractor may expect payment within seven or 14 days.
The principal contractor or commercial client might pay much later.
That leaves the business in the middle.
It has received the subcontractor invoice and needs to maintain that relationship.
But its own customer payment may still be weeks away.
If several subcontractors are being used across several new projects, that gap can become substantial.
Before committing to additional work, consider:
subcontractor payment terms
customer payment terms
progress claim dates
approval periods
expected margins
how much cash could be outstanding at once
A strong pipeline is valuable.
It still needs to be funded.
Labour creates a weekly or fortnightly commitment
Employees do not wait for the customer to pay.
If a new contract requires additional staff, payroll begins as soon as those employees start.
The associated customer revenue may arrive much later.
A growing business should therefore estimate how many pay cycles occur between commencement and the first meaningful customer payment.
If additional payroll is $15,000 a week and the customer cash does not arrive for six weeks, that is already a $90,000 working capital requirement before considering materials, fuel or suppliers.
The business may be completely profitable on paper while its cash position becomes tighter each week.
A contract deposit can change the picture
Not every project needs to be funded entirely by the business.
Depending on the industry and commercial arrangement, customer deposits, staged payments or more frequent progress claims may help reduce the gap.
Before automatically accepting standard payment terms, it can be worth considering whether the commercial arrangement reflects the amount the business has to fund upfront.
Could a deposit be requested?
Could materials be paid before ordering?
Could progress claims be submitted fortnightly instead of monthly?
Could specific milestones trigger payment?
Even a modest change in payment timing can reduce the amount of working capital the business needs to provide itself.
Finance is one possible tool.
Better commercial terms can be another.
What happens when the first invoice is raised?
Once valid B2B invoices have been issued, the funding position can change.
The business has now performed work and created a receivable.
But it may still be waiting 30, 45 or 60 days for payment.
For eligible businesses, debtor or invoice finance may be one option worth considering.
Depending on the facility, the business may be able to access part of the value of qualifying commercial invoices earlier rather than waiting for the customer’s normal payment cycle.
Lenders may assess factors including:
customer quality
invoice age
debtor concentration
payment history
disputes
credits
nature of the underlying work
This can be particularly relevant when a business is growing and the debtor ledger is growing with it.
The period before the invoice may require something different
Debtor finance generally relates to invoices that already exist.
But what if the largest funding gap occurs before the business can issue one?
The business may need to mobilise staff, order materials and commence the project first.
Depending on the circumstances, an overdraft, line of credit, working capital facility or other commercial finance structure may be considered for that earlier stage.
This is why the timing of the requirement matters.
A business may need funding:
before the work starts
then experience another gap:
after the invoice is issued
Understanding both stages can prevent the business from choosing a facility that only addresses half of the problem.
New equipment should be considered separately
Winning additional work may also require another vehicle, machine or piece of equipment.
That creates another decision.
Should the business use cash?
Would asset finance be more appropriate for an eligible long-term asset?
How much cash does the business need to preserve for materials, labour and suppliers?
Using $100,000 of available cash to purchase equipment may reduce debt, but it also removes $100,000 from the business’s working capital.
If that equipment is being purchased specifically so the business can take on more work, the effect on both sides should be considered.
The business needs the equipment.
It also needs enough cash to operate it.
Forecast the maximum amount tied up, not just the first week’s costs
Working capital requirements can build over time.
In week one, the business pays materials.
In week two, it makes payroll.
In week three, more subcontractor invoices arrive.
In week four, the first progress claim is submitted.
The money may still not arrive for several more weeks.
Rather than calculating only the cost of getting started, identify the point where the largest amount of cash is expected to be tied up.
That is often the more important number.
A week-by-week forecast can make this much easier to see.
Build some delay into the forecast
A project rarely runs exactly according to the spreadsheet.
An approval might take another week.
A customer may request additional information before processing a claim.
A variation could be disputed.
A supplier invoice may fall due earlier than expected.
For that reason, a forecast should not rely on every customer paying on the earliest possible date.
If a customer normally pays five or ten days after the stated terms, use that behaviour.
If payment timing is uncertain, consider what happens if receipts are delayed.
The purpose is not to create a pessimistic forecast.
It is to make sure the business has enough room for normal commercial delays.
The Christmas and New Year period can extend the gap
Jobs commencing in October or November can create invoices that fall due around Christmas or into January.
That needs to be considered now.
Customer offices may close.
Accounts teams may operate with fewer staff.
Approvals may take longer.
Meanwhile, the contractor still has payroll, suppliers, vehicles, rent and finance commitments.
A project that starts well before Christmas can therefore create a cashflow requirement extending well into the new year.
The forecast should follow the contract until the expected customer receipts actually arrive.
Growth funding should have a clear exit
Whenever additional working capital is being considered, it is useful to ask what will repay it.
For a new contract, the answer may be future progress payments.
For another business, it may be customer invoices or the conversion of stock back into cash.
A clearly defined funding cycle can help distinguish growth funding from a recurring cash shortage.
If a facility is used to mobilise a project, there should be a commercial expectation that the project receipts will ultimately restore the working capital position.
If the business constantly requires more borrowing simply to meet ordinary expenses, a broader review may be required.
September is still the preparation stage
The point of reviewing this now is not to assume every Craigieburn business will need additional finance before Christmas.
The work may not eventuate.
Existing reserves may be sufficient.
Customer deposits could reduce the gap.
Supplier terms may help.
Current facilities may already provide enough capacity.
But if a business is quoting larger jobs or expecting its workload to increase over the final quarter, there is value in knowing how much cash those opportunities might require before they are accepted.
That creates time to make a considered decision.
What information may help if finance is required?
Requirements vary by lender and product, but useful information may include:
recent business bank statements
financial statements or management accounts
existing contracts or purchase orders
proposed new contracts
project value
anticipated project costs
payroll requirements
materials and supplier costs
debtor ledger
creditor ledger
customer payment terms
existing finance commitments
ATO position
amount required
proposed use of funds
expected date required
expected repayment source
The more clearly the business can explain the relationship between the funding and the new work, the easier it is to assess which options may be relevant.
Five questions Craigieburn businesses may ask while planning ahead
Can finance help us start a contract before the customer pays?
Potentially. Working capital facilities may be considered where a business needs to fund eligible operating costs associated with new work before customer receipts arrive. Lender requirements vary.
What if we need materials before we can submit a progress claim?
The cost and timing of materials should be included in the funding forecast. Depending on the circumstances, supplier terms, customer deposits or commercial finance may help address the gap.
Can debtor finance help with progress claims?
Potentially, once an eligible invoice or receivable exists. The treatment of progress claims and contractual payments varies between lenders, so the underlying contract and invoice structure would need to be reviewed.
What if the new work also requires another vehicle or machine?
Eligible vehicles and equipment may be considered separately under asset finance while working capital is preserved for labour, materials and other operating expenses.
Is late September too early to plan funding for work expected before Christmas?
No. If the business is already quoting, negotiating or preparing for projects likely to start over the coming months, this is still the planning stage and can be a useful time to estimate the potential cash requirement.
Make sure the business can fund the opportunity it wins
For growing businesses in Craigieburn VIC, a strong pipeline can be a very positive sign heading toward the final quarter.
But additional contracts may bring materials, payroll, subcontractors and equipment costs well before the associated customer payments arrive.
Thrive Broking can help Craigieburn businesses review that funding cycle and compare working capital, debtor finance, asset finance and other commercial finance options across our lender panel where appropriate.
At this stage of September, the objective is not to assume the Christmas period is already creating pressure.
It is to understand what future work could require from the business before agreeing to deliver it.
A Broker’s Observation
When someone tells me they have won a large new contract, the contract value is not the first number I would rely on.
I want to know what happens between signing the contract and receiving the first payment.
How much needs to be spent?
How many payrolls occur?
What materials are required?
When can the first invoice be raised?
How long does the customer actually take to pay?
A $400,000 contract can be an excellent opportunity.
But if the business needs to fund $150,000 before the first meaningful receipt arrives, that $150,000 deserves just as much attention as the $400,000 headline.