Won a big contract? How to work out the cash gap before the first payment, and which finance covers wages, materials, equipment and invoices.
Construction Hub
Contract Mobilisation Finance · Cash Gap · Staged Funding
Winning a large contract often means paying wages, materials and equipment weeks before the first payment lands. Here is how to plan the gap before you sign and which finance fits each stage.
Quick Answer
A big new contract usually needs working capital because crew, materials and site costs start straight away, while the first payment only arrives after a claim is approved and paid. Map that gap in a cash flow forecast before you sign, negotiate a deposit where you can, then fund the lowest point with a working capital loan and carry later claims with invoice finance or a line of credit.
Also called: mobilisation funding, contract finance. Purchase order finance is related but narrower: it funds one specific order of goods, not the whole start-up of a contract.
Why does winning a big contract strain cash flow?
Winning a big contract strains cash flow because the costs start the day you mobilise, while the first payment arrives only after you have done the work, claimed it and waited out the customer's payment terms. That stretch is the cash curve from signing to first payment, and on a large job it runs deeper and longer than anything your normal month has prepared you for.
Your existing jobs keep paying on their usual rhythm, but the new contract asks for crew, materials, site setup and sometimes equipment all at once. The owners who get into trouble are rarely the ones who priced the job badly. They are the ones who priced it well and then ran short of cash in the first few claim cycles, before the margin had a chance to arrive.
The size of the contract against your current turnover matters more than the headline dollar figure. A contract that roughly doubles your monthly activity roughly doubles your outgoings straight away, while income only catches up once the first claims are approved and paid. The same squeeze shows up on a smaller scale when wage weeks land before job payments, which we cover in tradie wage weeks and working capital.
Does a profitable contract still need finance?
A profitable contract can still need finance, because profit is measured across the whole job while cash is measured week by week. A job can show a healthy margin on paper and still leave your account at its lowest point a few weeks in, which is why the timing of payments matters as much as the price. More on the difference between profit and cashflow sits in our glossary.
What costs come before the first payment on a new contract?
The costs that come before the first payment are typically wages, materials, site establishment, equipment, insurance and any security the customer asks for. Mobilisation is the bill before the invoice: you pay it in full, up front, and recover it slowly through claims.
- Wages and crew. New hires and subcontractors are paid weekly or fortnightly from the first week, and payroll is usually the largest early outgoing. Our payroll gap finance guide covers that piece on its own.
- Materials and stock. Suppliers may want a deposit or cash on delivery from a new account, or on an order larger than you normally place. If a supplier tightens terms mid-job, see what to do when a supplier cuts your credit.
- Site establishment. Fencing, amenities, hire gear, traffic management and temporary services, most of it paid before any work is claimable.
- Equipment. Extra plant, vehicles or tools needed for the life of the job. If the contract needs another truck, our second truck mobilisation insight covers that case.
- Insurance and compliance. Contract works and liability cover sized to the job, plus inductions, licences and accreditations the customer requires.
- Security. Some head contractors and government buyers ask for a bank guarantee or performance bond before work starts. That is a separate instrument with its own rules, covered in performance bonds and bank guarantees for civil contractors.
From the underwriter's seat, a lender wants to see these costs listed line by line, with the week each one falls due, before you ask for money. One round figure labelled "start-up costs" reads as a guess.
How do you work out the cash gap before you sign?
You work out the cash gap by mapping every outgoing and every expected payment week by week, from signing to the point where receipts overtake costs, and finding the lowest point of the running balance. Plan the gap before you sign, because once the contract is signed most of your room to negotiate deposits, claim dates and terms is gone.
- List the mobilisation costs. Every cost from the section above, with the week it falls due.
- Map the claim schedule. When you can first claim, how often, how long approval takes, and how long after approval the customer pays.
- Take out the retention. Deduct the amount held back from each claim, because you will not see it until the end of the job.
- Layer it over the rest of the business. Your other jobs, overheads, tax and loan repayments stay in the forecast.
- Find the trough. The deepest point of the running balance is the amount to fund, plus a buffer for a late approval or a disputed variation.
- Test a delay. Push the first payment back by one claim cycle and see whether the business still holds.
A cash flow forecast built this way is the most useful document you can bring to a lender, and it is the same document that tells you whether to sign at all.
What should you negotiate before signing a big contract?
Before signing, negotiate the terms that shorten the cash curve: a deposit or mobilisation payment, more frequent claims, shorter payment terms and a lower or capped retention. A deposit is the cheapest finance you will get, because it carries no interest and comes from the party that wants the work done. Not every customer agrees, but a large customer asking a smaller business to carry its job for months is a fair point to raise. It is also worth checking the customer can pay, which our company credit check insight walks through.
Which finance fits a new contract: loan, invoice finance, line of credit or equipment finance?
The right finance depends on which part of the contract you are funding: a working capital loan for the up-front gap, invoice finance for approved claims, a line of credit for the swings, and equipment finance for plant. Most contracts that need funding end up using two of these, each matched to the cost it covers.
| Part of the contract | When the cash goes out | Finance that commonly fits | Typically repaid from |
|---|---|---|---|
| Wages and crew | From the first week, before any claim is paid | Working capital loan or line of credit | Claim payments over the following months |
| Materials | At order or on delivery, often before work starts | Working capital loan, or purchase order finance for one large order of goods | The claims that include those materials |
| Equipment | Before mobilisation, kept for the life of the job | Equipment finance secured over the asset | Regular repayments over the asset's term, usually longer than the contract |
| Waiting on invoices | After each claim is approved, through the payment terms | Invoice finance against approved claims | The customer's payment of each invoice |
| Retentions | Held back from every claim until completion or the end of the defects period | Line of credit buffer; retentions are rarely financed directly | Release of the retention at the end of the job |
How these facilities sit together, and which one does the heavy lifting, is covered in our cashflow facility stack insight. For the basics of the loan itself, start with the working capital loans guide.
Where does purchase order finance fit on a new contract?
Purchase order finance fits when the contract turns on one large order of goods that you must buy before the customer pays. A funder pays the supplier for that specific order and is repaid when the customer settles, so it suits supply contracts more than labour-heavy services. If those goods come from overseas, our trade finance guide for importers covers the import side.
How do lenders assess funding against a signed contract?
Lenders assess funding against a signed contract by looking at who the customer is, how and when the contract pays, and whether your business can deliver it, more than at the headline contract value. A signed contract supports an application, but it is rarely security on its own.
In rough order, a lender checks:
- The customer. A government agency or an established head contractor reads differently from a first-time developer, because the risk sits with whoever pays the invoices.
- The payment mechanics. Claim frequency, the approval process, payment terms, the retention, and whether the contract allows payments to be assigned to a funder, which matters for invoice finance.
- Your track record. Whether you have delivered work of this size and type before. A step up of several times your usual job size is the question an assessor will press hardest.
- Your forecast. The week-by-week map of the gap, showing where the trough sits and when receipts overtake costs.
- Your existing position. Current debts, tax obligations and how the business has handled its account conduct over recent months.
The usual outcome: the lender funds the opening gap against your trading history and the forecast, and treats the contract as evidence that the gap closes, not as the asset it lends against. Approval speed and the share of the gap a lender will cover vary by lender and by file.
Which payment terms and retentions add risk to a new contract?
The payment terms that add the most risk are long payment periods, infrequent or slow-approved claims, high retentions, pay-when-paid style clauses, and broad rights for the customer to set off or withhold money. Each one deepens or lengthens the cash curve, so read them as finance terms, not only as legal terms.
- Long terms after approval. Every extra week between approval and payment is a week you fund yourself.
- Infrequent claims or slow approval. Monthly claims with a drawn-out assessment can push the first payment well past the first month. Our progress claim cashflow insight covers how small builders handle the claim cycle, and the progress claim glossary entry defines the term.
- Retentions. Retentions hold back money you have already earned, often until well after the job is finished. A retention that looks small per claim adds up across a long contract, as our retention holdbacks insight shows.
- Pay-when-paid clauses. Clauses that tie your payment to the head contractor being paid push their risk onto you. Security of payment laws in every state and territory make pay-when-paid clauses in construction contracts unenforceable, but contracts outside construction can differ, so have a solicitor check.
- Set-off and back-charges. Wide rights to deduct costs from your claims make your receipts harder to forecast and harder to finance.
- Variations without written approval. Extra work done on a verbal instruction is cost now and an argument later.
Every state and territory has security of payment legislation that gives contractors a right to claim progress payments and a fast adjudication process when a claim is disputed. The rules, time limits and forms differ by state and have changed in some states recently, so ask a solicitor what applies to your contract before you sign.
Which payment rules apply on Commonwealth contracts?
On in-scope Commonwealth contracts, at the time of writing, the Australian Government's Payment Times Procurement Connected Policy requires large businesses to pay their small business subcontractors within a set period, with interest owed on late payment. Check whether your head contractor's contract is in scope, and ask how they pay subcontractors before you price the job. For financing invoices on government work, see invoice finance for government customers.
How do you stage funding across the life of the contract?
You stage funding by matching each facility to the phase of the contract it covers: a working capital loan for mobilisation, invoice finance or a line of credit through the claim cycle, and no new borrowing once receipts overtake costs. Staged funding, not one lump, keeps interest down because you only borrow while the cash curve needs it.
- Before signing. Build the forecast, negotiate the deposit and terms, and get finance approved in principle so you are not scrambling after the start date.
- Mobilisation. Draw the working capital loan sized to the trough and arrange equipment finance for any plant. Pay crew and materials on time to protect supplier terms.
- The claim cycle. Finance approved claims through invoice finance, and use a line of credit for the weeks when an approval runs late.
- Steady state. Once receipts exceed costs, pay the line down and stop financing invoices you no longer need to.
- Close-out. Keep a buffer while the retention is held, and use the final numbers to price the next contract more accurately.
A common mistake is borrowing the full contract value on day one. That pays interest on money that sits idle for months and can leave a term loan still running after the contract has finished. The cleaner outcome is usually a smaller loan sized to the trough, with the rest of the contract carried by its own invoices. Paying suppliers ahead of customer receipts is its own timing problem, covered in how to pay suppliers before customers pay, and more construction-specific funding options sit on our Construction Hub.
A big contract can stretch a healthy business, because mobilisation is the bill before the invoice and the first payment arrives only after claims are approved and paid. Map the cash curve from signing to first payment week by week, negotiate a deposit and better claim terms before you sign, and treat retentions and payment clauses as part of the finance picture. Then fund the trough with a working capital loan, carry approved claims with invoice finance or a line of credit, and finance plant separately, so each facility covers one job and stops when the contract starts paying for itself.
Key takeaway: plan the gap before you sign, then fund the lowest point of the cash curve, not the whole contract value.Frequently Asked Questions
You can get a loan supported by a signed contract, but most lenders treat the contract as evidence that the cash gap will close rather than as security on its own. They look at the customer, the payment terms and your record on similar jobs, and usually lend against your business's trading history and cash flow. A working capital loan for the mobilisation gap, paired with invoice finance against approved claims, is a common structure.
Purchase order finance is funding that pays a supplier for a specific customer order, so you can fulfil the order before your customer pays you. The funder is typically repaid when the customer settles, often by rolling the debt into invoice finance once the goods are delivered and invoiced. It suits contracts built around one large order of goods more than labour-heavy service work.
You negotiate a deposit before starting a contract by showing the customer your mobilisation costs and asking for a mobilisation payment, or an early first claim, before you sign. A deposit is the cheapest finance you will get, so it is worth asking even when the answer may be no. A clear cash flow forecast turns the request into a business case rather than a favour.
Government contracts can pay subcontractors faster, because at the time of writing large businesses on in-scope Australian Government contracts must pay their small business subcontractors within a set period under the Payment Times Procurement Connected Policy, with interest owed on late payment. Whether it applies depends on the contract, so ask the head contractor before you price. For funding the invoices themselves, see invoice finance for government customers.
Mobilisation finance is not the same as a performance bond: mobilisation finance gives you cash to start the job, while a performance bond is a guarantee to the customer that you will deliver it. A bond can tie up cash or security of its own, so it usually adds to the gap rather than closing it. The mechanics are covered in performance bonds and bank guarantees for civil contractors.
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