Quick answer
Funding a big contract starts with one number: the most cash you will be out of pocket at any point, which is costs paid minus payments received, at the worst week. Size your facility to that peak, then match it to the payment terms, retention, bonds and who pays you, using progress, invoice or short-term finance.
Key points
- Map costs and receipts week by week to find the peak funding need, which is usually much larger than the first invoice
- Retention, bank guarantees and performance bonds can lock up cash long after the work is done
- The customer's payment terms matter more to your cash than the contract price
- Commonwealth policy for non-corporate entities is to pay invoices under $1m within 20 calendar days, and many state governments have their own targets
- Match the facility to the payment date: a short, drawn-down line beats a long term loan for a contract with a known end
Winning a big contract is the moment many businesses are most exposed. The customer has said yes, the work is yours, and the bank balance is about to fall. You will be buying materials, paying wages and covering subcontractors well before the first cheque arrives, and the contract price on paper says nothing about how much cash you need to get there.
This guide is about the gap. It shows you how to calculate it, which contract terms make it bigger, and which finance fits. If you’re still at tender stage, read it before you sign.
What is a peak funding need?
It is the largest amount you will be out of pocket at any one point during the contract. Not the total cost, and not the first invoice. The highest point on a line that goes down as you pay for things and up as the customer pays you.
To find it, build a simple weekly table covering the life of the contract plus the payment delay after it:
- Costs out. Wages, subcontractors, materials, hire, insurance, bonds, travel, fuel.
- Money in. Each claim or invoice, on the date you expect to be paid, not the date you send it.
- Running balance. The cumulative result, week by week.
The lowest number in the running balance column is your peak. That’s what the facility needs to cover, plus a buffer for things going slower than planned. Our cash flow gap calculator is a quick way to check the shape.
| Week | Costs out | Money in | Running balance |
|---|---|---|---|
| 1 to 4 | $64,000 | $0 | -$64,000 |
| 5 to 8 | $72,000 | $48,000 | -$88,000 |
| 9 to 12 | $70,000 | $0 | -$158,000 |
| 13 to 16 | $52,000 | $120,000 | -$90,000 |
| 17 to 20 | $20,000 | $140,000 | +$30,000 |
In this illustrative example the contract is worth $308,000, but the peak funding need is $158,000, reached in week 12. A business that thought only about the first invoice would have planned for a quarter of that.
Which contract terms make the gap bigger?
The price is rarely what causes trouble. The terms usually are.
- Payment terms. 14 days is a different world from 60. A government agency or a large corporate may have a standard cycle you can’t change, so cost it in.
- Claim dates. If you can claim only on the last day of the month, work done on the first waits a month before you can even invoice.
- Retention. A percentage of each payment held back until completion or the end of a defects period. If it’s 5 per cent of a $308,000 contract, that’s $15,400 that may arrive long after the work is finished.
- Bank guarantees and bonds. A guarantee gives the customer security that you’ll perform, but it can reduce your facility limits or require cash cover.
- Variations. Extra work agreed informally can turn into an unpaid claim. Get changes in writing and claim them promptly.
- Subcontractor terms. If you pay your people faster than you get paid, the gap widens.
Read these before you commit. Each is negotiable more easily before signature than after.
What do payment times look like in practice?
It depends on who you are working for.
The Commonwealth’s policy for non-corporate entities has been to pay correctly rendered invoices within 20 calendar days for contracts up to $1 million, and many state agencies set their own targets. Check the contract, because the policy and the clause don’t always match. For larger corporates, the Payment Times Reporting Scheme requires big businesses to report how quickly they pay their small business suppliers, and you can look up published reports. It is a useful way to check how a prospective customer actually behaves before you commit.
If the customer is slow, price the delay into your funding. If the contract is with a large head contractor, ask about the terms they’ve agreed with their client, as they set the pace for everyone below them.
Which finance fits which stage?
Different stages of the contract need different tools. Combine them rather than hunting for one that does everything.
| Stage | Cash problem | Often-suitable finance |
|---|---|---|
| Mobilisation | Deposits, materials, hiring before any claim | Line of credit or short working capital loan |
| Progress claims | Costs paid weekly, claims paid monthly | Progress payment finance |
| After invoicing | Waiting 30 to 60 days for payment | Invoice finance against issued invoices |
| Equipment needs | Extra plant or vehicles for the job | Equipment finance |
| Retention | Cash locked up after practical completion | Line of credit or a short bridge to release it |
| Bonds and guarantees | Security demanded by the customer | Bank-issued bank guarantee or insurance bond |
The strength of the customer carries real weight with lenders, particularly for invoice-based finance. A contract with a well-regarded government body or listed company is a stronger asset than one with an unknown buyer. Our guides on funding a government contract and how builders fund progress payments go into the sector detail.
Banks should be on your list. If you meet their criteria they are often the cheapest source, and an existing relationship can speed things up. They also issue guarantees, which many customers require. If the bank can’t move at the pace of the contract, or won’t extend the limit you need, other lenders can look at the contract and your trading history and respond faster.
Have a contract in hand and a start date coming? Tell us the terms and the timing and we’ll look at the structure.
How do I show a lender the contract is sound?
Lenders reading a large-contract application want to understand five things. Having them ready shortens the conversation.
- The contract itself, or the letter of award, showing price, scope, payment terms and any retention.
- The customer. Who they are, how long they have traded, and their payment history if you know it.
- Your cost build-up. A realistic budget of what the job costs, with a margin that makes sense.
- The weekly cash table, with the peak funding need marked.
- Your track record. Evidence you have delivered work of similar size or scope. If you haven’t, say so, and explain how you’ll manage the step up.
If the contract is a big step up from your usual jobs, it’s worth saying what you’ll do about the extra people and supervision. A lender will worry less about a stretch that you’ve planned for.
What are the usual risks with a single large contract?
- Concentration. One customer making up most of your income means a late payment or a dispute hits hard. Keep other work going where you can.
- Capacity. Taking on a large job can starve existing customers. Plan staffing before you commit.
- Scope creep. Unpaid extras erode margin faster than most owners expect.
- Disputes. Security of payment laws in several states give a fast path to recover progress payments in construction; check which rules apply in your state and industry, and the relevant small business commissioner or the ASBFEO for guidance.
- Cost movements. Fixed-price contracts leave you carrying wage, material and fuel increases. Ask whether an escalation clause is available.
A worked example: the commercial cleaning company
This is an illustrative example. A cleaning company with 14 staff wins a three-year contract to clean a group of government buildings. It adds 20 cleaners, equipment and supervisors, with a first-month cost of about $96,000 and a monthly invoice of $128,000 payable 30 days after the invoice date.
- Peak cash need: month one costs, month two costs and month three costs are all paid before the first invoice is paid, because month one’s invoice is paid at the end of month two. The peak is about $210,000 once equipment and uniforms are counted.
- Guarantee: the customer asks for a performance guarantee equal to 5 per cent of annual contract value, around $77,000 a year.
- Funding: the owner arranges a $150,000 line of credit for mobilisation, finances $60,000 of cleaning equipment against the machines, and asks the bank to issue the guarantee. Once invoices are flowing, the owner moves the invoices into a finance facility so the line stays free.
By month four the contract is paying for itself, and the owner can reduce the line. The key was seeing the full $210,000 before the first uniform was ordered.
Mistakes to avoid on a big contract
- Funding for the contract price instead of the peak.
- Missing the cost of retention and guarantees.
- Agreeing to terms you haven’t priced.
- Paying subcontractors on shorter terms than you are paid.
- Delaying claims because the customer is a valued relationship.
- Letting the contract drain the cash you need for existing customers.
Ready to fund your contract?
A big contract is a sign the business is doing something right, and it should be a reason to feel confident, not squeezed. A short conversation about the peak, the terms and the timing usually sets out what to use and when.
Our enquiry takes around a minute and doesn’t involve a credit check, so your credit file isn’t affected by asking. Your details aren’t spread around a list of lenders, so you won’t be fielding a dozen calls. A real person reads about your contract and calls you back. Fill in the form as accurately as you can, particularly the contract value, the payment terms and the start date, and we can focus on what’s most likely to fit.
Frequently asked questions
How do I fund a large contract when I haven't been paid yet?
Work out the peak cash you'll be out of pocket, then use finance that matches the payment timing. Options include a line of credit, progress payment finance against milestone claims, invoice finance against issued invoices, and short-term working capital loans. The contract itself, and the customer's strength, are often central to the assessment.
What is retention in a contract?
Retention is a percentage of each payment, or of the contract price, that the customer holds back until the work is complete or any defects period ends. It's common in construction and similar contracts. It reduces your cash flow during the job and can come back months after you finish, so include it in your funding plan.
Do I need a bank guarantee or performance bond for a contract?
Some customers, particularly large corporates and government bodies, require one. It is a promise from a bank or insurer that money will be paid if you fail to perform. Banks may take security or reduce your facility limits to issue one, so ask early about how it affects your borrowing.
Can invoice finance help with a big contract?
Yes, once you have issued invoices to a creditworthy customer. It advances a share of the invoice value immediately, rather than waiting for the customer's payment terms. It does not help with costs incurred before the first invoice, so you may need a second form of funding for the early stages.
What if my customer pays late?
Late payment is the main risk in large contracts. Check the contract for payment terms and interest on late payments, and see if security of payment legislation in your state applies. Build a buffer into the facility, and keep records of every claim and acceptance.
Will a lender fund a contract with a single customer?
Often, yes, but they'll look closely at how reliable the customer is and how concentrated your income is. A single large client can strengthen the case if it's a government body or established corporate, and weaken it if the customer is new or in a risky sector.