Won a big contract? How to fund the work before the first payment arrives

Why can a good contract break your cash flow?

It sounds backwards. You’ve won the biggest job in the company’s history — and now you might not be able to afford to do it. But it’s one of the most common reasons growing New Zealand businesses look for fast funding. Before the client pays a cent, you’re buying materials, hiring or rostering extra staff, perhaps buying or hiring equipment, and covering the overheads that keep everything running. The first payment might be four, six or eight weeks away. And at the end of the job, part of the payment may be held back as retention.

The contract is profitable. The cash flow, for a while, is not.

How do you map the cash gap?

Draw a simple week-by-week table for the life of the contract:

Week	Cash out	Cash in	Running balance
1	Materials deposit, mobilisation	—	Falling
2–4	Wages, materials	—	Falling
5	Wages	First progress payment	Recovering
6–12	Wages, materials	Progress payments	Fluctuating
End	Final costs	Final payment less retention	Positive
Later	—	Retention release	Positive

The lowest point in that running balance, plus a buffer for delays, is roughly what you need to fund. business.govt.nz recommends cash flow forecasting to avoid financial trouble and plan for growth — for a big contract, it’s not optional.

Which fast options fit which part of the gap?

Part of the gap	Option that often fits	Why
Start-up costs before the first payment	Short-term loan, unsecured or secured	Defined amount, repaid from early progress payments
Ongoing gap while invoicing monthly	Invoice finance	Grows with each invoice
New equipment for the job	Equipment finance	Asset secures it; keeps other capacity free
Large start-up costs or credit issues	Property-secured loan	$20k–$250k possible same day; up to $5m possible in 24–48 hours
Recurring gaps across several contracts	Line of credit	Draw and repay contract by contract

Often the best answer is a combination: equipment finance for the new machine, a short-term loan for the start-up costs, and invoice finance or a line of credit for the ongoing cycle.

What about retentions?

If you work in construction, retentions are part of the picture. Since 5 October 2023, retention money is automatically held on trust by the head contractor once the contract allows it to be withheld, and retention money held as cash must be kept in a separate bank account. Penalties for failures can reach $50,000 for directors and $200,000 for companies.

For a subcontractor, retentions are still money you’ve earned but won’t see for a while — so don’t count them in the running balance until the release date. For a head contractor, retention money held for subcontractors isn’t yours to use for working capital.

Illustrative example. A Christchurch commercial painting firm wins a $900,000 contract on a new school. It needs about $150,000 for paint, access equipment and extra crew before the first monthly progress payment, with a retention held back from each payment. A short-term property-secured loan covers the start-up costs and is repaid from the second and third progress payments. Scaffolding is hired rather than bought, and the firm’s forecast leaves retentions out entirely until their release date.

Just won the job? Show us the payment schedule and we’ll map the right funding to it.

Does your margin survive the finance cost?

Before you commit, rerun the contract’s numbers with the finance cost included:

• Contract price less direct costs less overheads allocated less finance cost equals real margin.

If the real margin is still healthy, the funding is a sensible investment. If finance wipes most of it out, look for cheaper structures, negotiate a deposit or mobilisation payment from the client, or reconsider the job.

What if the client pays late?

Big clients — councils, developers, large corporates — are often reliable but slow, and a payment that arrives two or three weeks late can throw your whole plan out. Build that into your forecast and your funding: a little more headroom, a slightly longer term, or a revolving facility you can lean on if a progress payment slips. Our page on late-paying customers has practical tactics for keeping payments on schedule.

What will a lender ask for?

• The signed contract or letter of award.
• The payment schedule, including retention terms.
• Your costings for the job.
• Bank statements and ID.
• Details of other contracts on the go.
• Property details, if offering security.

Should you buy or hire equipment for the job?

If the equipment will be used beyond this contract, buying with equipment finance can make sense, particularly for new assets that may qualify for Investment Boost. If it’s only for this job, hiring keeps the cost tied to the contract and leaves your borrowing capacity for materials and wages.

How do you reduce the gap?

• Ask for a deposit or mobilisation payment. Many clients will agree for large jobs.
• Negotiate supplier terms for materials.
• Invoice promptly on every milestone.
• Hire rather than buy equipment you’ll only need for this job.

For the product detail, see short-term business loans, invoice finance and equipment finance. If your gap is mostly materials, buying stock fast covers similar ground.

Take the job without the cash crunch

A good contract deserves funding that fits its payment schedule. Asking us involves no credit check, and we don’t spread your details around a list of lenders — one specialist looks at your contract and calls you. Share accurate numbers for the contract value, your start-up costs and when payments are due, and we’ll suggest the combination that gets you through to the final payment with your margin intact. Apply now.