Quick answer
Builders fund progress payments by covering costs from working capital until each claim is paid. The gap is usually weeks long because of claim dates, payment schedule periods and payment terms, and retention holds back a further slice. Common fixes are a line of credit, progress payment finance against issued claims, equipment finance and supplier terms.
Key points
- Wages, subcontractors and materials are due before the claim is paid, so a builder is effectively lending to the client for weeks at a time
- Security of payment laws set claim and response timeframes, but they differ by state and have been changing, so check your own state's rules
- Retention, commonly held back until practical completion or the end of a defects period, can tie up cash on every job for months or years
- A claim that is late, short or disputed breaks the forecast, so the cushion matters more than the average
- Finance against an issued claim, or a standby line of credit, is generally cheaper when arranged before the squeeze
A builder who pays a framing crew on Friday and sends the claim on Monday is, for the next several weeks, lending the client money. Nobody planned it that way. It is simply how progress payments work: costs fall due as work is done, and income follows later once the paperwork has run its course.
This guide looks at where that gap comes from, how long it really is, and the ways builders close it without taking on more debt than the job justifies.
Why is there a gap at all?
A progress payment is a payment for work completed to a stage, not for work that is about to be done. A typical sequence looks like this:
- You complete work, or reach a stage in the contract.
- You issue a payment claim on or after the reference date.
- The client has a limited time to respond with a payment schedule saying what they will pay and why.
- Payment is due on the date set by the contract, subject to the maximum period allowed by your state’s law.
- A slice (retention) may be held back until completion.
Every step takes days, and your wages, subcontractor invoices and supplier statements do not wait. By the time claim money lands, you may have spent the next stage’s costs too, so the gap rolls forward from job to job.
On a $1.2m home build with six claims, a six-week lag on each means you are carrying one or two claims of cost at all times. On a business running four such jobs, that can reach the hundreds of thousands.
What do security of payment laws change?
Each state and territory has security of payment legislation giving contractors a quicker route to payment than going to court. The details vary, and they are being updated: Victoria rewrote its regime in 2026, and Queensland and New South Wales have their own timelines and trust account arrangements for retention. The general features are:
- A strict claim process. The claim usually has to be in the correct form, served on time, and identify the work and the amount.
- A deadline for the client’s response. If the client does not issue a payment schedule in time, they can become liable for the full claimed amount in several states.
- Adjudication. A fast, paper-based decision on a disputed claim, usually within weeks rather than months.
- Time limits for making a claim. These differ by state and have been lengthened in some, so check your state’s current rules, and the Queensland Building and Construction Commission, the NSW Building Commission or your state equivalent.
The practical lesson for cash flow is that the process rewards discipline. A claim served late, in the wrong form, or on the wrong date can lose you weeks, and weeks are money. Many builders put a recurring diary entry for each reference date and have the claim ready before it.
If you subcontract, remember you may be on the receiving end of the same delays. A head contractor’s slow payment can cascade down to you, which is one reason lenders ask who the principal is.
How much does retention hold back?
Retention is the part of each payment held back as security against defects. Contracts commonly set it as a percentage of the contract value, released in stages, for instance at practical completion and then at the end of a defects liability period. Some states now require retention to be held in trust to protect subcontractors if a head contractor fails.
For cash flow, retention is a hidden loan. On a $2m commercial job with a modest retention percentage, tens of thousands can sit with the client for months after your last site visit. You have paid your suppliers and crew in full, so it is not available to you.
Two ways builders manage it:
- Forecast it as a separate line. Show it as a receivable with a release date, not as part of the claim cycle.
- Negotiate early. Ask whether a bank guarantee or a smaller retention percentage could replace cash retention, though that has a cost of its own through the guarantee fee.
What does the cash cycle look like on a real job?
This is an invented example. A builder is constructing three townhouses for a developer under a $1.8m contract, claimed monthly. Monthly costs are about $210k (crew, subcontractors, materials). The contract pays within 20 business days of a valid claim, and the client holds 5 per cent retention.
- Work in month one is done by day 30. The claim goes in on day 31.
- Payment arrives about day 60, roughly 30 days after the work finished.
- By then the builder has paid for month two as well, and part of month three.
At peak, the builder is carrying about $420k of unpaid cost, less the deposits or earlier claims already received. After retention, around $90k of the contract value sits unclaimable until completion.
The owner’s actual working capital need is not the total contract but the peak of unpaid cost, which a simple month-by-month table makes visible. Our 13-week cash flow guide shows the table, and funding a big contract takes it further.
Not sure what your peak would be? Send us the contract size and claim cycle and we can sketch what funding could look like.
What are the ways to fund progress payments?
| Option | How it works | Best for | Watch for |
|---|---|---|---|
| Overdraft or line of credit | Reusable limit drawn as costs fall due | Builders with regular, repeatable claim cycles | Limits can be reviewed; set up before you need it |
| Progress payment finance | Advance against an issued, certified claim | Larger claims from reliable principals | Fees on each claim; lender checks the client and contract |
| Invoice finance | Advance against invoices | Commercial builders and subcontractors | Disclosure to customers on some products |
| Equipment finance | Funds machinery, vehicles, scaffold | Keeping cash free for wages | Don’t stretch the term beyond the asset’s useful life |
| Property-secured loan | Loan against real estate | Larger or longer needs, speed | Using property as security carries real risk |
| Supplier terms | Pay in 30 to 60 days | Materials with repeat spend | Early payment discounts may be worth taking |
Banks should be your first conversation. For an established builder with clean financials and a work-in-progress schedule, a bank facility is often the cheapest option and well worth taking seriously. If the bank declines, or the limit does not match your peak, other lenders look at your contracts and receivables rather than only your history. Read more on how lenders view builders.
What do lenders want to see?
Whichever route you choose, preparing these makes the conversation quicker:
- A work-in-progress schedule showing each job, contract value, claimed to date, paid to date and costs to complete.
- Copies of contracts and the most recent payment claims and schedules.
- An aged receivables report, so the lender can see who pays on time.
- Business bank statements, the latest BAS and financial statements.
- Licence details and insurance.
A builder who can show a clear, up-to-date schedule is easier to lend to than one who cannot, because the lender can see the repayment source.
How can builders shrink the gap without borrowing?
Some of the best fixes cost nothing but effort.
- Claim at the first opportunity. Put reference dates in the diary and send the claim that day.
- Ask for a deposit that matches front-loaded costs. Statutory caps apply to domestic work in most states, so check yours.
- Shorten payment terms in the contract where the principal agrees, or negotiate a progress schedule that pays at milestones close to when you incur costs.
- Call the client the day the claim goes out. A phone call to confirm receipt is cheap and flags problems early.
- Chase variations promptly. An approved variation claimed late is a loan you made by default.
- Stagger subcontractor payments to match your own payment cycle where contracts allow. Do not delay payments you are legally required to make.
Our guide to managing slow-paying customers has scripts and timelines that work for both commercial and residential jobs.
What mistakes cost builders the most?
- Quoting without allowing for the cost of carrying the job until the final payment.
- Starting a new job before the last one has paid, using the new deposit to fund the old job.
- Missing a claim date and losing a month of cash flow.
- Taking on a large contract where one slow payer could break the business.
- Waiting until the account is overdrawn before approaching a lender.
Thinking about the next big job?
Winning the work is the easy part. Carrying it until it pays is where good builders get stretched. If you can see a gap coming, or you have a claim you would like to bring forward, it helps to find out what your options are while your work in progress looks strong.
Our enquiry form takes around a minute, and enquiring does not leave a mark on your credit file. We do not hand your details to a panel of lenders; a real person reads your situation and calls you. Describe your contracts, claim cycle and funding need as accurately as you can, and the first option suggested should be the right one.
Frequently asked questions
How long does a builder wait for a progress payment?
It depends on the contract and state. You submit a claim on a reference date, the client has a set period to respond with a payment schedule, and payment is then due under the contract terms or the statutory maximum. In practice 30 to 60 days from the work being done is common, and longer when a claim is disputed.
What is retention and how does it affect cash flow?
Retention is a percentage of each payment held back by the client as security for defects. It is released at practical completion or after a defects liability period. On a long job it can amount to a large sum that you have already paid for in wages and materials, so build it into the forecast.
Can a builder borrow against an unpaid progress claim?
Yes, through progress payment finance or invoice finance. A lender advances most of the value of an issued, undisputed claim and is repaid when the client pays. Lenders look at the client, the contract and whether the work has been certified, so a claim from a reputable principal is easier to fund than a disputed one.
What if my client pays late or disputes the claim?
Security of payment laws give you a faster route than court, usually starting with a correctly served payment claim and adjudication if there is no payment schedule or the schedule is for less than the claim. The process is strict about form and timing, so get advice early and keep records of every claim and response.
Do banks lend to builders with uneven cash flow?
Many do, particularly to established builders with strong financials, work in progress schedules and some property security. Banks can be the cheapest option for a builder who fits their criteria. If a bank declines, non-bank lenders can look more closely at the contracts and receivables.
Should I fund materials with a loan or with supplier credit?
Supplier credit costs nothing while you stay within terms, so use it first. Borrow when the gap is larger than your suppliers will carry, or when a discount for early payment is worth more than the cost of funds. Keep the repayment date lined up with the claim that will pay for it.