The Working-Capital Cost of Waiting for Payment

Payment timing and funding

Fuel, wages and vessel hire have payment dates. The contractor needs cash on those dates, alongside a credible final margin. Bid approval should establish how much cash the campaign will require before receipts catch up with expenditure.

The answer depends on the full sequence from measurement to receipt. A contract stating payment after certification leaves another important question: how long does certification take?

One extra month, a larger funding gap

An IMWO example assumes four construction months. Each produces CNY 20 million of billable work and CNY 17 million of cash expenditure. Mobilisation costs CNY 4 million. There is no advance payment; 5% is retained from progress payments. Tax, finance charges and defect work are excluded.

With each progress payment received one month after its work month, the largest month-end funding gap is CNY 21 million. An additional month's delay raises it to CNY 38 million. The contractor needs CNY 17 million more funding, although the pre-finance, pre-tax surplus remains CNY 8 million in both cases.

The accumulated CNY 4 million retention has a later release point. An extension of the payment cycle changes funding needs; an increase in production cost reduces the surplus. Management needs both effects in the same decision.

The accompanying tool contains every monthly movement in this illustrative model. A project funding plan also needs the actual intra-month payment dates.

Classify the money before chasing it

Work awaiting measurement needs a survey and confirmation decision. Measured work awaiting valuation needs a rate or change assessment. Certified sums with a future due date sit within the contractual payment period. Due but unpaid sums require payment action and escalation.

Disputed amounts and retention need their own treatment. Split an application into sub-items where the states differ, so that each amount has one primary status. Allocate partial receipts and leave a visible balance.

A single total labelled outstanding payments conceals these differences. It can overstate overdue debt and make the team pursue the wrong remedy. Connect site records, applications, certificates, invoices and receipts through a common identifier, so that commercial and finance teams can reconcile each amount.

The payer needs a funding programme too

Owners and main contractors should compare committed, certified and due expenditure with available funds. Budget release, lender drawdown and internal approval dates need to support contractual payment dates.

A foreseeable mismatch belongs with the authorised decision-maker before the payment falls due. Leaving it with the site team effectively asks suppliers and subcontractors to finance an administrative or funding delay they may have no ability to control.

For transactions within its scope, China's revised 2025 SME payment regulation addresses delayed acceptance, internal-process excuses and payment of undisputed portions. It also prohibits large enterprises from making SME payment conditional on third-party receipts or their proportions.^[1]

The register should identify the legal and contractual basis of the due date, including the relevant entity and settlement method. Calculate the date from that transaction's triggering event and period.

Give retention a release process

Retention needs a stated purpose, deduction basis, cap and release conditions. Sectional acceptance, outstanding defects and final release should be connected to the contract's actual requirements.

The team should identify amounts whose conditions have been satisfied, the person responsible for processing them and the date action is due. Track each eligible release through payment, including sectional releases while other account items remain open.

UK reporting guidance now includes construction-retention information for businesses and contracts within the relevant requirements.^[2] Project reporting should examine release performance alongside payment periods and identify amounts ready for release.

Guarantees, receivables finance and cash retention impose different costs and conditions. An instrument issued, a debt confirmed and cash received are separate events. The project's records should show which event has actually occurred.

Make funding part of bid approval

IMWO recommends an expected cash sequence, a certification-delay case and a case excluding disputed or unapproved revenue. The finance approval should name the peak requirement, available facility, drawdown conditions and maturity mismatch.

Main contractors should include downstream amounts falling due under their own contracts. Owners should verify that their funding and approval arrangements support the promised timetable. Competitive pricing needs a payment plan that can be carried out.