Winning Big: The Hidden Cash Flow Pressures When Landing a New Contract

Winning a new contract or landing a large order is undeniably exciting for any small business. It’s a testament to the hard work, reputation, and potential of your company. However, while the prospect of growth and new opportunities is thrilling, many small business owners are blindsided by the financial pressures that come with fulfilling these new orders.

As an independent finance brokerage, we’re speaking to more and more small businesses that are experiencing cash flow difficulties after securing large contracts. Although the order itself is fantastic, the immediate need to pay for materials, wages, equipment, and other operational costs can quickly become overwhelming—especially when the business is unsure when payments will arrive. Here’s why this is a common issue and how businesses can better navigate these cash flow challenges.

1. The Cash Flow Crunch: When Invoices Don’t Match Expenses

When you win a new contract, the excitement often overshadows the reality of how much upfront investment is required to deliver the project. From purchasing raw materials to paying for labour and overheads, the costs quickly pile up. In many cases, the terms of the contract may mean that your business needs to outlay cash before you receive a single payment.

For example:

• Materials: You might need to purchase raw materials or stock before the job can even begin, which can strain your cash reserves.
  
  

• Labour Costs: Your team will need to be paid regularly, and in some cases, you may have to hire additional workers or subcontractors to meet project deadlines.
  
  

• Overheads: From transportation costs to equipment, there are a lot of hidden costs that aren’t always accounted for upfront.
  
  

Many small businesses don’t realise the scale of cash they will need to put up to get a job off the ground. Even if the project promises to be profitable, the timing mismatch between when the costs arise and when payments come in can create a real financial squeeze.

2. Payment Delays: The Waiting Game

One of the most nerve-wracking aspects of large contracts is the payment schedule. As you know, contracts with large clients often come with terms that include delayed payments—sometimes as long as 30, 60, or even 90 days. While this is normal in some industries, it’s a real challenge for small businesses that don’t have the luxury of a large cash buffer to absorb the costs of fulfilling an order in the interim.

Even when payments do come through, the wait can feel like an eternity. This is where the stress builds, and it’s easy to become anxious about how to pay your employees, suppliers, and keep operations running smoothly until those payments hit your account.

The Issue?
The delayed cash inflows from your customers don’t line up with the fast-moving cash outflows for materials, labour, and day-to-day expenses. This mismatch is often the tipping point for businesses struggling to stay afloat.

3. The Strain on Working Capital

For many small businesses, working capital is tight to begin with. The financial cushion needed to absorb large costs without a guaranteed immediate return simply may not be there. When winning a new contract, the pressure on working capital increases exponentially.

If your cash reserves are already thin, taking on a large order without a solid plan for financing can put you in a precarious position. With insufficient working capital, businesses can experience a downward spiral, with payments being missed, relationships with suppliers strained, and the business unable to complete the contract as efficiently as it could.

4. How Finance Solutions Can Help Your Business Grow Without Compromising Cash Flow

The good news is that there are ways to manage cash flow pressures and keep your business on track. As a finance brokerage, we often work with businesses who are struggling with this very issue, and we’ve helped many companies secure funding options that provide the liquidity they need to deliver on large contracts without risking their financial stability.

Here are a few potential finance solutions to consider:

Invoice Financing (Factoring or Discounting)

Invoice financing allows you to borrow against the value of your unpaid invoices. It’s a great option when you need cash quickly but don’t want to wait for customers to pay. You can access up to 90% of the invoice value upfront. This helps bridge the cash flow gap until your client settles the bill.

Short-Term Business Loans

For more immediate funding needs, a short-term business loan can provide the capital you need to meet expenses while waiting for payments. This can be particularly useful for smaller businesses with a large project on the go and can be repaid in regular instalments, easing your financial burden over time. You can also pay this off early at any time without penalty.

Revolving Credit Lines

Having an agreed credit line can give you the flexibility to manage fluctuations in cash flow. This can act as a safety net to cover day-to-day expenses, giving you the breathing room needed to complete large contracts.

Asset Refinance

Asset refinance is a funding option that allows your business to unlock the value tied up in existing assets—such as vehicles, machinery, or equipment—by using them as security for a loan. In simple terms, you refinance these assets to release cash back into your business.

5. Plan Ahead: Proactive Cash Flow Management

The key to avoiding cash flow strain is proactive financial planning. Before taking on large contracts, consider the following:

• Speak to a finance broker- The earlier our clients engage with a finance specialist the better as we are able to help map out the best funding options to support each individual requirement. The sooner you know your options, the better you decision making can be. 

• Forecasting: Create a cash flow forecast that outlines all expected expenses and payment receipts for the duration of the project. This will help you identify potential cash flow gaps in advance.
  
  

• Negotiating Payment Terms: Try to negotiate better payment terms with your clients, such as upfront deposits or milestone payments.
  
  

• Building a Cash Reserve: If possible, build a cash reserve that can help cushion the financial impact of taking on larger contracts.
  
  

Conclusion

Winning a large contract or order is a milestone for any small business, but the excitement can quickly turn into stress if cash flow isn’t properly managed. By understanding the cash flow pressures that come with large contracts, and taking advantage of the right financial solutions, you can ensure your business thrives without getting bogged down by cash flow issues.

At Secure Business Finance, we work with small businesses every day to help them secure the finance they need to keep growing. If you’re finding yourself in a cash pressure position, don’t hesitate to get in touch with us. We can guide you to the right solution that will help you fulfil those big contracts and keep your business on the path to success.