Quick answer
Winning a large contract often creates a cash gap: materials, staff and equipment have to be paid for weeks or months before the client's first payment. New Zealand businesses usually fund it with a mix of short-term unsecured loans for the first weeks, invoice finance once claims or invoices are issued, and equipment finance for any new plant. Mapping the gap week by week before signing is the key to borrowing the right amount.
Key points
- Map cash in and out week by week before you sign.
- Short-term loans fund the start; invoice finance funds the middle.
- Equipment finance spreads the cost of new plant.
- Negotiate deposits and payment terms where you can.
Winning a contract that’s bigger than anything you’ve done before is exciting. It’s also the moment many good businesses get into cash trouble, because the bigger the job, the more money goes out before any comes in. With a bit of planning, that gap is entirely fundable.
Why big contracts create big gaps
Most business-to-business contracts in New Zealand pay in arrears:
- Construction pays on monthly progress claims, often 20 working days after submission, with retentions held back.
- Government and councils pay reliably but often on the 20th of the following month.
- Large corporates may have 45, 60 or even 90-day terms.
- Exporters may wait for goods to arrive overseas before payment.
Meanwhile, you’re paying for materials on order, staff weekly or fortnightly, subcontractors on their terms, and equipment before you start. The larger the contract, the deeper the hole before the first payment.
Step one: map the gap
Before you sign, build a simple week-by-week forecast for the first three to six months:
- List every payment out: materials, wages, subcontractors, equipment, insurance, travel.
- List every payment in: deposit, claims or invoices, and when each will actually arrive.
- Add your existing business’s normal cash flow alongside.
- Find the lowest point, the week where you’re furthest behind.
That lowest point, plus a buffer for late payments, is roughly how much funding you need. Most businesses are surprised how early in the contract it comes, and how long it lasts.
Step two: match funding to each part of the gap
Different parts of the gap suit different funding.
The start: short-term or unsecured loans
Before any invoices exist, you’re funding mobilisation: materials, early wages, set-up. A short-term loan or unsecured loan works here, sized on your existing bank statements and supported by the contract. Same-day funding is possible for smaller unsecured amounts.
The middle: invoice finance
Once you’re issuing claims or invoices, invoice finance can advance most of each one straight away, so you’re not waiting 20 to 60 days. It grows with the contract and suits councils, government and large corporate clients particularly well.
New equipment: asset finance
If the contract needs a new truck, excavator, machine or fit-out, equipment finance spreads the cost over the asset’s life rather than draining cash at the start.
Large or long contracts: property-backed
For very large contracts, or where the business has property equity, a second mortgage or revolving facility secured over property can provide more on longer terms.
Step three: negotiate the contract, too
Funding isn’t the only lever. Before you sign, ask about:
- A deposit or mobilisation payment, especially for materials-heavy work.
- Shorter payment terms, or more frequent claims.
- Direct payment of major suppliers by the client.
- Retention caps or a retention bond instead of cash retentions.
- Price escalation clauses for long contracts if materials costs rise.
Every dollar paid earlier is a dollar you don’t need to borrow.
Step four: plan for the late payment
Clients pay late. Disputes delay claims. Weather stops work. Build at least a few weeks’ buffer into your forecast, and choose funding that can flex: a revolving facility or invoice finance handles a late payment more easily than a fixed short-term loan due on a set date.
An illustrative example
An Auckland commercial cleaning company wins a two-year contract to clean twelve council facilities. It’s worth about $85,000 a month, paid on the 20th of the month after invoicing. The company needs to hire 18 staff, buy two vans and $35,000 of equipment and supplies, and pay wages fortnightly from day one.
The forecast shows the company will be about $190,000 behind at the low point, in week seven, before the second monthly payment lands. It finances the vans and equipment through asset finance, takes a $70,000 short-term loan to cover the first six weeks of wages, and sets up invoice finance on the council invoices from the first month. By month three, the invoice finance facility funds each month’s wages from the previous month’s invoices, the short-term loan is repaid, and the business is running smoothly.
Common mistakes
- Underestimating the gap by forgetting GST, PAYE or retentions.
- Using a short loan for a long gap, then needing to refinance in a hurry.
- Taking on too large a contract relative to the existing business, without the management capacity to run it.
- Relying on a single client for most of the business’s income without a plan B.
- Signing first and arranging finance later, when the contract terms could have reduced the gap.
Before you sign, talk to us
The funding speed finder can show which route lands in time for your start date. Better still, talk to someone before you sign the contract, so the funding and the contract terms work together.
What a lender wants to see about the contract
When a business borrows to deliver a new contract, the lender is really assessing two things: whether your business can do the work, and whether the client will pay. Make both easy to see. Provide the signed contract or letter of award, the payment terms and claim schedule, and a short summary of similar work you’ve completed. If the client is a council, government agency or large company, say so, because a strong payer reduces the lender’s risk.
Lenders also want to know how the new contract fits alongside your existing work. A contract that doubles the size of the business in a month is a bigger stretch than one that adds a quarter. Show who will manage it, whether you’re hiring a supervisor or project manager, and how you’ll keep existing clients happy while the new job ramps up. A one-page plan covering staff, suppliers, start date and the first three months of cash flow answers most of these questions before they’re asked.
Finally, be clear about any conditions on the contract: performance bonds, insurance requirements, health and safety pre-qualification or minimum staffing levels. Some of these cost money up front too, and they belong in the forecast. A lender that understands the full picture can structure funding around it rather than discovering a gap halfway through the job.
Keep the rest of the business funded
It’s easy to focus so hard on the new contract that existing work gets squeezed. Keep a separate line in your forecast for normal running costs, and make sure the funding covers both. Existing clients who are paid late because cash went to the new job are the quickest way to lose goodwill you’ve spent years building.
Ask a real person
Asking what’s possible doesn’t touch your credit file, and your details won’t be sent to a list of lenders. A real person reads your enquiry, helps you map the gap and calls you with a funding plan that fits the contract. Start your enquiry.
Frequently asked questions
Can I borrow against a contract I've just won?
A contract isn't usually security on its own, but it strongly supports an application because it shows where repayment will come from.
How much should I borrow?
Enough to cover the deepest point of the cash gap, plus a buffer for late payments. A week-by-week cash flow forecast shows where that point is.
Should I ask the client for a deposit?
It's worth asking, especially for materials-heavy work or custom manufacturing. Even a modest deposit reduces how much you need to borrow.
What if the client pays late?
Build that into your plan. Lenders and facilities with flexibility, such as revolving credit or invoice finance, cope better with late payments than a fixed short-term loan.