Why construction runs short of cash even when it’s busy
Construction is one of the few industries where being busier can make cash tighter. Every new job means paying crews, buying timber, steel, cladding and fittings, and hiring gear before the first payment claim is paid. On a larger job, a business can carry weeks of costs at any point in time.
Then there are retentions: a portion of each payment held back by the head contractor or client as security against defects. It’s money you’ve earned but can’t use yet.
How the payment claim cycle creates a gap
Under the Construction Contracts Act 2002, a contractor can serve payment claims for work done. The payer then has a set time to respond with a payment schedule if they dispute the amount, and to pay. If the contract doesn’t set those dates, the default is 20 working days after the claim is served.
In practice, that looks something like this for a subcontractor on monthly claims:
| Week | What happens | Cash position |
|---|---|---|
| 1–4 | Crew works; weekly wages paid; materials bought | Money going out |
| 4 | Payment claim served for the month’s work | Still going out |
| 5–8 | Next month’s work continues | Going out further |
| 8 | First claim paid, less retention | Partial recovery |
That’s a gap of a month or more on every claim, before you account for disputes, variations or a slow-paying principal. Our guide to debtor days and payment claims explains the process in more detail.
What trades businesses use funding for
- Wages between progress payments, so crews are paid every Friday regardless.
- Materials for a new or larger job, especially where suppliers want payment on the 20th.
- Plant and equipment — a new digger, scaffold or ute — when a job needs it.
- Working capital tied up in retentions.
- Tax — GST on invoices raised but not yet paid, or provisional tax after a strong year.
Which structure fits?
A revolving line of credit is usually the best match for the payment claim cycle: draw to pay wages and suppliers, repay when claims are paid, draw again for the next month. It’s for businesses usually trading six months or more, with the limit based on turnover and bank statements.
For larger or one-off needs — buying plant, clearing a tax balance, funding a big contract’s start-up — a property-secured loan from $20,000 to $1m, secured on New Zealand property you or a supporting party own, can provide a bigger lump sum without needing financials or tax returns for the initial assessment.
Protecting yourself on the paperwork
Funding bridges the gap, but good paperwork shortens it:
- Serve valid payment claims. Include the details the Act requires, and remember the prescribed information that must accompany a payment claim (Form 1 on building.govt.nz).
- Diarise the response dates. If no payment schedule arrives in time, the full claimed amount may become payable.
- Track retentions. Since 5 October 2023, retention money is held on trust and head contractors must keep records and report to subcontractors. See our retention money guide.
- Get legal advice on disputes — this page isn’t legal advice.
Example scenario
Example scenario — illustrative only. A Christchurch electrical subcontractor wins a fit-out package on a commercial build that’s double the size of anything it has done before. It needs to buy cabling and switchboards upfront and add two electricians. The owner uses a line of credit to fund the first two months of materials and wages, then repays as monthly claims are paid, keeping the facility ready for the next project.
Pricing
Every facility is priced on your circumstances. We don’t publish rates; we look for the sharpest option available for your business.
Keep the job moving
The 60-second enquiry is free and doesn’t affect your credit score. Tell us about your claims cycle and a lending specialist will call you back. Or call 09 875 4577.