A new contract starts on 12 January.
Good customer.
Good revenue.
Twelve months of work.
Exactly the sort of contract a growing business wants to win.
There is just one problem.
The first customer invoice may not be paid until February.
The costs can start months earlier.
For a Brisbane QLD contractor, transport operator, maintenance business, labour provider or commercial service company, winning work that commences after Christmas can create a working capital requirement well before the first day on site.
Employees may need to be recruited.
Vehicles could be required.
Uniforms and equipment need ordering.
Supplier accounts may need opening.
Insurance or site requirements may need to be arranged.
Existing employees may spend time preparing for mobilisation.
Then Christmas arrives.
Payroll, rent and existing business commitments continue.
January comes around, the contract begins, and the business starts carrying the full operating cost of the new work.
The first payment can still be weeks away.
That is why the question before accepting a significant new contract is not only:
“Is this profitable?”
It is also:
“How much cash will we need before this contract starts paying us back?”
A January start date can create a November funding requirement
The date written at the top of the contract is rarely the first date money needs to be spent.
A business starting a major contract in January might need to begin preparation in November.
Perhaps ten new employees are required.
Recruitment starts.
Interviews take place.
Some employees need to start early for training.
Vehicles or equipment need to be sourced.
A supplier requires a deposit.
Software licences need to be added.
Site inductions need to be completed.
By December, the business may already have invested heavily in a contract that has not technically started.
That is the real beginning of the cashflow cycle.
Mobilisation costs are easy to underestimate
Businesses tend to focus on the large obvious expenses.
Payroll.
Vehicles.
Materials.
But mobilisation can involve many smaller costs that accumulate quickly.
Depending on the contract, they might include:
recruitment
medicals or pre-employment checks
training
licences and tickets
uniforms
personal protective equipment
phones or tablets
software access
tools
vehicle fit-outs
equipment deposits
fuel cards
administration
accommodation or travel
site induction costs
Individually, some of these may not appear significant.
Multiply them across ten, twenty or fifty new employees and they become a substantial upfront commitment.
The contract value can hide the size of the cash gap
Imagine the new contract is worth $900,000 over twelve months.
That sounds substantial.
But the annual contract value does not tell the business what happens during the first ten weeks.
Perhaps mobilisation costs $60,000.
Additional weekly payroll is $28,000.
Fuel, suppliers and other operating expenses add another $12,000 a week.
If the first customer payment does not arrive until six weeks after commencement, the business could carry a significant amount before collecting its first major receipt.
The contract may be profitable over twelve months.
The funding requirement exists in the first few months.
That is the period that deserves attention.
Work out when the first dollar comes back
One of the most important dates in a new contract is not the commencement date.
It is the expected date of the first cleared customer payment.
There may be several steps before then.
Contract starts.
Work is performed.
Timesheets or service records are completed.
The first billing period closes.
An invoice is raised.
The customer checks it.
The invoice enters the customer’s payment system.
Payment terms begin.
The customer pays.
A contract commencing on 12 January may not produce its first significant cash receipt until late February or even later depending on the billing arrangement.
That changes how much working capital the business needs.
Monthly billing can make the first cycle particularly long
Suppose a contract starts in mid January but the customer requires monthly invoicing.
The business works for the remainder of January.
Employees receive multiple payrolls.
Suppliers are paid.
Fuel and operating expenses continue.
An invoice is raised at the end of January.
The customer then has 30 day terms.
The first customer money could arrive around the end of February.
Meanwhile, February payroll and operating costs have already begun.
The business may therefore be funding six or seven weeks of operating activity before the first invoice is collected.
That can be a very different cash requirement from what the monthly profit margin suggests.
Weekly payroll and monthly customer payments are a classic mismatch
This is particularly important for labour-intensive businesses.
Employees may be paid weekly.
The customer may be billed monthly and pay later.
If additional payroll is $30,000 a week, the business needs $120,000 just to fund four weeks of wages.
Six weeks becomes $180,000.
Eight weeks becomes $240,000.
That is before adding:
superannuation
fuel
suppliers
subcontractors
equipment
insurance
administration
The business can have a strong contract and still need considerable working capital to support it.
Recruitment timing matters
A business might try to reduce the gap by delaying recruitment until January.
That can create another risk.
Will the required people actually be available?
Do they need training?
Are there licences or inductions?
Does the contract require the workforce to be operational from day one?
If employees need to start two or three weeks before commencement, that preparation period belongs in the cashflow calculation.
The recruitment plan and the funding plan should be developed together.
Christmas can make mobilisation timing more difficult
A January contract has another complication.
Much of the preparation may need to occur before Christmas because suppliers, customers and employees can be harder to coordinate during the holiday period.
Equipment may need to be ordered earlier.
Vehicles might need to be arranged.
Employees may need offers before people go on leave.
Customer contacts responsible for approvals may be unavailable during parts of December.
That can push expenditure earlier than the commencement date would suggest.
Late September and October can therefore be useful times to map out January contract requirements rather than leaving all mobilisation planning until December.
Do the vehicles need to be ready before day one?
A contract involving field staff, transport, maintenance or service crews may require additional vehicles.
The business might need several utes, vans, trucks or trailers.
Buying them outright can consume a large amount of cash before the contract starts.
The alternative may be to investigate asset finance for eligible vehicles and equipment.
That does not mean financing is automatically the better choice.
It means the business can compare:
the cost of financing the assets
with
the effect of using cash that may also be needed for payroll and mobilisation.
A vehicle may remain productive for years.
The payroll gap may last weeks.
Treating those as separate funding needs can make the cashflow structure clearer.
Equipment purchases can create the same issue
The contract might require machinery, forklifts, tools, specialised equipment or technology.
Again, ask what happens to the operating account after the purchase.
If paying cash for $150,000 of equipment leaves the business with insufficient room to carry six weeks of new payroll, the business has solved the equipment problem and created a working capital problem.
For eligible assets, comparing asset finance with a cash purchase can help preserve more liquidity for the operating cycle.
Customer deposits can materially change the first months
Some contracts allow an upfront mobilisation payment.
Others do not.
If a customer expects the supplier to incur substantial mobilisation costs before commencement, it can be worth discussing whether the commercial structure includes:
a mobilisation payment
upfront contribution
equipment payment
deposit
earlier first milestone
Large organisations may have fixed procurement policies.
But where there is flexibility, customer funding at the beginning of the contract can significantly reduce the amount the supplier needs to carry itself.
Do not assume a purchase order solves the cashflow problem
A confirmed contract or purchase order is extremely useful.
It provides confidence that the work exists.
It may also help explain the purpose of a finance application.
But it is still future revenue.
The business cannot use the contract value to pay Friday’s payroll unless customer cash has actually arrived.
A business may have millions of dollars of contracted future work and still need additional working capital.
There is nothing unusual about that.
The important issue is whether the funding requirement has been calculated before mobilisation begins.
Existing customers still need to be funded too
Winning a significant new contract does not put the rest of the business on hold.
Existing customers still need service.
Current employees still need paying.
Existing supplier accounts continue.
Tax commitments remain.
Vehicles need repairs.
The business may therefore need to fund the new contract on top of its normal working capital requirement.
This is why using every available dollar for mobilisation can be risky.
A new customer should add to the business, not prevent it from comfortably looking after existing customers.
Growth can create a second cashflow problem when the first invoice is raised
Eventually, the contract begins.
The first billing period is completed.
The customer is invoiced.
The business has reached an important milestone.
But the cash may still not have arrived.
At this stage, the funding problem has changed.
Initially, money was needed for mobilisation and operating expenses before invoicing.
Now money may be sitting in accounts receivable.
Different stages of the same contract can therefore require different working capital solutions.
Debtor finance may become relevant once eligible invoices exist
For eligible B2B businesses, debtor or invoice finance may be worth investigating once qualifying commercial invoices have been raised.
Depending on the lender and facility, the business may be able to access part of the value of eligible receivables earlier rather than waiting for the customer’s normal payment cycle.
Lenders may assess matters such as:
the customer
invoice value
invoice age
debtor concentration
payment history
disputes
the underlying contract or transaction
This may become useful where a growing business has a substantial amount of revenue tied up in invoices.
But debtor finance does not fund mobilisation before an invoice exists
This distinction matters.
In November or December, the business may not yet have anything to invoice.
Recruitment has started.
Vehicles are being arranged.
Equipment has been ordered.
Staff are preparing.
There may be no debtor.
That earlier funding requirement may instead involve:
existing cash
customer deposits
an overdraft
line of credit
working capital finance
another commercial funding structure
The right structure depends on the business, amount, timing and expected repayment source.
Existing overdrafts need to be measured against the new business size
Perhaps the business already has a $200,000 overdraft.
That does not necessarily mean the contract is covered.
If normal trading already uses $120,000, the actual additional capacity is far smaller.
Then consider what happens when the new payroll begins.
A facility that comfortably supported the business at its current size may not be enough for the larger business it is about to become.
The working capital limit should be considered against future trading, not only historical trading.
The new contract might double one part of the business overnight
This can happen even when total annual turnover is not doubling.
Perhaps the business has ten field employees and the new contract requires another eight.
Payroll capacity has changed dramatically.
Or the business runs six vehicles and needs another four.
The operating footprint has increased significantly.
Large contracts can create step changes rather than gradual growth.
That is why simply looking at last year’s average monthly expenses may underestimate what the new contract requires.
Build a mobilisation budget separately
Instead of hiding mobilisation inside the annual budget, create a separate schedule.
What must be spent before commencement?
When?
Which costs are one-off?
Which become weekly recurring expenses?
When is the first invoice?
When is the first payment?
At what point does the contract begin funding itself?
That schedule can make the working capital requirement much easier to understand.
It also helps separate temporary mobilisation costs from the ongoing operating costs of delivering the contract.
Ask when the contract becomes self funding
This is the important turning point.
At some stage, regular customer receipts should begin covering the ongoing cost of servicing the contract.
Perhaps that happens in February.
Perhaps March.
The business needs enough working capital to reach that point.
The required funding is therefore not necessarily equal to the total annual operating cost.
It is the amount needed to carry the business from mobilisation until the cash cycle becomes established.
That is a much more useful number.
Do not assume the first customer payment can repay everything immediately
When the first large payment arrives, another payroll may already be due.
Another supplier invoice might be waiting.
The contract is continuing.
The business still needs enough cash to operate.
A working capital plan should therefore consider how the facility or initial investment is reduced over time rather than assuming the first payment can simply repay all funding at once.
Cash needs to keep circulating.
Stress test the biggest customer
A major new contract can also increase customer concentration.
Suppose one customer will account for 35 per cent of future revenue.
What happens if its first payment is a week late?
What if a timesheet discrepancy delays an invoice?
What if the customer’s accounts team asks for additional documentation?
The customer may still be excellent.
But the business has become more dependent on the timing of that customer’s payments.
That concentration deserves to be reflected in the cashflow buffer.
What if the contract starts two weeks late?
This is another useful test.
The business has already recruited.
Vehicles have been sourced.
Employees have been trained.
Then the customer moves the commencement date.
Can the business carry those costs for another fortnight?
Contracts can change for operational reasons without anyone doing anything wrong.
A mobilisation plan that allows no room for a delayed start may be too tight.
The business needs a buffer, not only the exact calculated amount
Suppose the expected funding gap is $180,000.
Arranging exactly $180,000 of total available liquidity may leave little flexibility.
The calculation is still based on assumptions.
Fuel can be higher.
Training can take longer.
A vehicle may need repairs.
A start date can move.
An employee may need to be replaced.
The business should consider what operating buffer it wants beyond the expected requirement.
That does not mean borrowing unnecessarily.
It means avoiding a plan where every number has to land perfectly.
Christmas makes the preparation window shorter than the calendar suggests
A contract beginning in January may appear three months away in October.
Operationally, there may be far fewer useful preparation weeks.
Customers take leave.
Suppliers close.
Employees travel.
Equipment providers may have reduced availability.
December can disappear quickly.
That is why businesses with January contracts may need to make decisions earlier than the commencement date initially suggests.
The cashflow plan needs to recognise that some of the spending may also happen earlier.
Five questions Brisbane businesses should ask before a January contract starts
We have a signed contract. Can that help with finance?
A signed contract can help explain the commercial purpose and expected future revenue, but lenders will still assess the business and application under their own credit requirements.
Can working capital finance cover mobilisation and early payroll?
Potentially, depending on the business, lender, amount and eligible purpose. The timing of the first customer receipts and expected repayment source will be important.
Should we finance the vehicles separately?
For eligible vehicles and equipment, asset finance may be worth comparing with using cash, particularly where the business needs to preserve working capital for mobilisation and payroll.
Can invoice finance help before the contract starts?
Generally, debtor or invoice finance relates to qualifying invoices or receivables that already exist. Before invoicing begins, another form of working capital may need to be considered.
When should we calculate the funding requirement?
Before recruitment, equipment and supplier commitments become difficult to reverse. If a January contract is already confirmed, the mobilisation cashflow can be mapped well before Christmas.
The contract starts in January. The financial commitment starts earlier.
Winning a significant new contract can move a business forward.
More revenue.
More employees.
More vehicles.
A stronger customer base.
A larger operation.
But the business has to fund the transition from its current size to its new size.
For Brisbane QLD businesses, that can mean spending in November and December to prepare for work that will not generate collected customer cash until February.
Thrive Broking can help businesses review the mobilisation period and compare relevant working capital, asset finance, debtor finance and other commercial funding options across our lender panel where appropriate.
The finance discussion should happen around the cash cycle, not simply around the contract value.
A $1 million contract can be excellent business.
The important question is how much cash the business needs to safely reach the point where that contract starts paying for itself.
A Broker’s Observation
When a business wins a large contract, people naturally focus on the value.
I focus on the first payment.
What has to happen before it arrives?
How many payrolls?
How many vehicles?
How much equipment?
How much recruitment?
How much supplier expenditure?
If the contract starts in January and the first meaningful customer payment arrives in February, the business may need to fund months of preparation and delivery before the cash cycle settles down.
That does not make the contract unattractive.
It means the business needs a mobilisation plan that is financial as well as operational.
The contract is won when the customer signs.
The growth becomes sustainable when the business can comfortably fund delivering it.