Quick answer
Government customers are reliable payers but rarely pay up front. Fund a contract by mapping set-up costs and wages to the payment milestones in the agreement, then cover the gap with progress claims, invoice finance or a short-term working capital loan. Commonwealth entities generally pay within 20 days, or 5 with e-invoicing, but only after a valid invoice is approved.
Key points
- A government customer is a low-risk payer but a slow starter: you spend first, then invoice against milestones
- Non-corporate Commonwealth entities are expected to pay small business suppliers within 20 days, or 5 days where e-invoicing is used
- Many contracts require security, insurance and sometimes a bank guarantee before work starts
- Invoice finance works well on approved invoices from government, but check what the contract says about assigning payments
- Winning the tender is not the end of the cash planning; payment starts with the invoice, not the award
Winning a government contract feels like arrival. The customer is solid, the work is steady and the logo looks good on a capability statement. Then the practical questions land. Who pays for the first month of wages? When does the first invoice go in? What if the milestone is signed off two weeks late?
Government is a dependable payer but a demanding one, and the pattern is nearly always the same: you spend before you invoice. This guide shows how to line up the money with the contract rather than hoping the first payment arrives in time.
Why does a safe customer still create a cash problem?
Because “will they pay?” and “when will they pay?” are different questions. A funder will answer the first with a yes. The second depends on mechanics inside the agency:
- The work has to be done and accepted against the contract’s milestones.
- Your invoice has to be correct, include the right purchase order or contract reference and reach the right inbox.
- A delegate may have to approve it before payment is released.
- Then the agency’s payment terms start to run.
Each step is small. Together they can put several weeks between the last day of work and the money. Meanwhile your people are paid weekly or fortnightly, super is due quarterly and suppliers want 30 days or less.
What payment terms can you expect?
For the Commonwealth, the Supplier Pay On-Time or Pay Interest policy applies to non-corporate Commonwealth entities. According to the Department of Finance, the maximum payment term is 20 calendar days for eligible small business suppliers, or 5 days where both parties use Peppol e-invoicing, unless a shorter term is agreed. Late payments carry interest. Corporate Commonwealth entities are encouraged, not required, to follow it. Check your contract for what actually applies, and note that Finance has been updating its guidance, so look at the current version before you rely on a number.
States and territories have their own versions, usually with fast terms for registered small business suppliers. And agencies that don’t fall under these policies may pay on 30 days or more.
Two practical consequences:
- E-invoicing is worth setting up. If your accounting software can send e-invoices, the difference between 20 and 5 days is a real saving in working capital.
- The clock starts at a valid invoice. An invoice with a missing reference can restart it. Treat invoicing accuracy as a funding issue.
How do you size what you need?
Lay the contract out as a calendar. For each month, list cash out (wages, super, subcontractors, materials, insurance, equipment hire) and cash in (milestone payments, after allowing for the realistic approval and payment lag).
| Month | Cash out | Invoice raised | Cash in | Running position |
|---|---|---|---|---|
| 1 | $48k | Nil (mobilisation) | $0 | -$48k |
| 2 | $52k | $75k milestone 1 | $0 | -$100k |
| 3 | $52k | $60k milestone 2 | $75k | -$77k |
| 4 | $50k | $60k milestone 3 | $60k | -$67k |
The lowest figure is your funding need, here about $100k, and it happens in month two, not month one. Many owners arrange finance for the start-up costs and then discover the deepest point comes later.
If building this table feels slow, our 13-week cash flow forecast guide uses the same layout week by week.
What security does the agency expect from you?
Larger or longer contracts, especially in construction and facilities, may require:
- Insurance certificates such as public liability and professional indemnity, often at set minimum cover levels.
- Performance security, which may be a bank guarantee or a cash retention held back from each payment.
- Police checks, licences or accreditation, which cost money and time.
Retention is the one that surprises people. If five per cent of every payment is held until practical completion, a $1m contract locks up $50k of your money, sometimes for months after the work is done. Add it to the funding table above.
A bank guarantee uses part of a facility limit, so ask your lender how it counts against your borrowing capacity.
What finance options suit government work?
| Option | Why it fits | Watch out for |
|---|---|---|
| Invoice finance | Pays most of an approved invoice early; funders like a government payer | Check whether the contract limits assignment of payments |
| Working capital loan | Covers wages and mobilisation before the first invoice | Repayments begin before the contract pays you |
| Overdraft or line of credit | Handles the wobble from late approvals | Limits can be too small for a large contract |
| Asset finance | Funds vehicles or machines bought for this contract | Make sure the contract term is longer than the loan term |
| Property-secured loan | Larger amounts, longer terms | Takes longer and puts property on the line |
A neat combination is a short working capital loan for set-up and the first month, then invoice finance once invoices are flowing. That way you aren’t paying for funds you don’t need.
A short enquiry is a quick way to find out which of these your contract and trading history support.
Do the contract terms limit what you can borrow against?
Sometimes. Some agreements prohibit assigning the right to payment, or require written consent, or contain clauses about set-off, which lets the agency deduct amounts it believes you owe from payments due. A funder will want to read these clauses. Raise it early with the contract manager and ask how other suppliers have handled it.
Also check termination for convenience, which allows the agency to end the contract without fault on your part. Lenders look at what happens to your cash flow if that clause is used.
Can grants or programs help?
Possibly, but they rarely solve a cash timing problem. The business.gov.au grants finder lists federal and state programs by industry and purpose, and some support things like equipment, export or innovation. Treat any grant as a bonus and don’t plan wages around money that hasn’t been approved. Our government grants guide explains how to check eligibility.
A worked example (illustrative)
A cleaning company wins a two-year facilities contract with a federal agency. Monthly invoices are about $38k, and the first month’s costs, including equipment, uniforms and a bond, come to $41k before any invoice. The company’s payer is a non-corporate Commonwealth entity on 20-day terms.
The owner models the lag: the work is done in month one, the invoice goes in on the first of month two, approval takes a week, and payment arrives about 20 days after approval. First cash in is around day 58. The company takes a $60k working capital loan over 12 months and, once invoices are approved on a regular rhythm, adds invoice finance so the monthly wait shrinks to a few days.
Two of the lessons are general. Count days from invoice approval, not from work done, and don’t repay the loan on a schedule that assumes the contract pays faster than it does. For more on that growth pattern, see how cleaning businesses grow contracts.
Common mistakes
- Funding only the first month. The deepest cash hole is usually later.
- Assuming 20 days means 20 days from completion. It means 20 days from a valid invoice.
- Ignoring retention and security. These tie up cash and facility limits.
- Hiring ahead of the first payment with no buffer for a late milestone.
- Skipping the contract read. Assignment, set-off and termination clauses matter to funders.
Turning an award into a funded contract
You have done the hard part by winning the work. What remains is to make sure the money arrives in the right months, so that the contract grows the business instead of straining it.
Send us the contract value, term, milestones and who the customer is. The form takes about a minute, and asking doesn’t involve a credit check. Your information doesn’t circulate around a stack of lenders; a person with lending experience reads it, and then rings you to talk it through. Put in accurate figures, even the unflattering ones, and we’re far more likely to get the right structure the first time.
Frequently asked questions
How quickly do government agencies pay suppliers?
Non-corporate Commonwealth entities are expected to pay eligible small business suppliers within 20 calendar days, or 5 where both sides use e-invoicing, with interest on late payment under the Commonwealth's pay-on-time policy. State governments have their own small business payment policies. The clock starts from a correct invoice, not from the work being finished.
Can I get finance against a government contract?
Usually yes. Funders like government debtors because the risk of non-payment is low. Invoice finance, working capital loans and asset finance for contract-specific equipment are the common routes. Read your contract first, as some limit assignment of payments or require the agency's consent.
Do I need a bank guarantee to win government work?
Not always, but larger and construction-related contracts often ask for performance security, such as a bank guarantee or retention held back from payments. Ask early what's required, because arranging a guarantee takes time and may tie up a facility limit.
What costs hit before I'm paid?
Mobilisation, staff, insurance, vehicles and equipment, and any materials you need. Add a safety margin because most agencies pay on approved milestones, so a dispute over one deliverable can delay a whole invoice.
Is a government contract good security for a loan?
It helps a lender see where repayment comes from, but it is rarely security on its own. Lenders usually also look at your trading history, bank statements and any property or equipment you can offer.
What if my bank said no to funding a contract?
That's common for new suppliers or contracts that are large relative to turnover. Banks are excellent when you meet their criteria, and it is worth asking them again with the signed contract. Alternatives include non-bank working capital and invoice finance, which assess the contract and the payer more than your history.