You won the contract. How do you finance delivery?

Winning a large order can create an immediate financing problem. The customer may pay after delivery, while the business must buy materials, hire crews and ship goods first. A signed purchase order helps prove demand, but it is not cash in the bank or an automatic loan approval. The right facility depends on whether the company needs money before production, during work in progress or after it has issued an invoice.

The four moments in an order's cash cycle

1. Contract award. The customer agrees to buy, but the company still needs to assess cancellation, acceptance, change orders and the timing of payment.
2. Procurement and production. Suppliers and staff need cash before the goods or service are complete. Work in progress can be difficult collateral.
3. Delivery and invoicing. After performance and acceptance, the business may have a collectible receivable, subject to the contract terms.
4. Collection. The customer pays, the facility is reduced and gross profit becomes cash after financing costs.

The same project can move from an order to inventory or work in progress, then to an invoice, then to cash. Lenders may value these stages differently. A strong customer name cannot erase uncertainty about whether the supplier can deliver within budget. A business should first prove that the order has a positive cash margin after materials, labour, freight, taxes, financing fees and expected rework.

If the deeper issue is that reported profit never arrives as bank cash, start with why a profitable business can still run out of cash.

Consider a construction subcontractor that wins a $1.8 million scope with staged acceptance. The firm may need cash for materials in month one, payroll in months two through four and a separate bridge while a final retainage is withheld. A single “$1.8 million contract” figure conceals the peak funding need. The lender needs the project-level schedule and the company's overall cash obligations at the same time.

A worked contract funding gap

Build a weekly version for the real order. Include the cash cost of keeping all other operations running, not merely the project expenses. An apparently profitable contract may be too large for the present balance sheet if the financing gap overlaps another large order. The owner should be able to tell a lender the exact peak draw and the expected repayment event.

Five financing routes to compare

An operating line is flexible when eligible inventory and receivables support it, but its approved limit may not equal the amount available to draw. BDC explains that borrowing capacity reflects eligible assets less senior amounts and changes as the underlying accounts change.² A sudden large order can therefore exceed a line even if reported sales look strong.

BDC describes purchase-order financing as a loan usually arranged after a signed PO and repaid when the customer pays. It distinguishes this from factoring, which is generally a sale of a receivable after goods are delivered, not a loan.¹ Product structures vary by provider, so ask whether funding goes to the supplier or the business, what happens after invoicing, and whether the customer must acknowledge an assignment or direct payment arrangement.

A customer deposit can reduce borrowing without a lender. But the customer may demand a price concession, performance security or refund right. Supplier terms can also reduce the peak draw; do not stretch payables past agreed terms merely to make a forecast look viable. If the company frequently wins similar orders, a standing operating facility may be more efficient than negotiating a separate transaction each time.

Does a government contract make financing easy?

An awarded public-sector contract can make the revenue source more identifiable, yet the business still has to perform the work and satisfy the government's acceptance and payment terms. An award notice, standing offer, purchase order, master agreement and executed task authorization may create different levels of certainty. The exact contract document matters. CanadaBuys explains that contract award and the issuance of purchase orders follow particular procurement processes; a supplier should provide the actual signed documents rather than only a screenshot of a listing.³

For a lender, the government counterparty is one part of the case. The borrower must also demonstrate delivery capacity, budget, subcontractor reliability, insurance or bonding where required, and rights to proceeds. If a contract can be cancelled, reduced or paid only after inspection, those terms belong in the cash-flow model. Ask whether performance security will tie up the same cash or credit line the company expects to use for production.

Export contracts may involve a different support system. Export Development Canada's Export Guarantee Program can share risk with a financial institution and can support work-in-progress financing related to a specific contract or revolving facility for eligible international business. EDC and the lender assess eligibility, structure and fees; it is not a generic guarantee available for every domestic contract.⁴

What the lender will want to see

Prepare a clean package. Include the signed contract and any amendments; a cost-to-complete budget with supplier quotes; the production or service timetable; the customer's credit and payment history where known; financial statements; receivables and payables aging; current facility terms; and a forecast showing the peak cash requirement. If the company is a subcontractor, show the chain of contracts and who actually owes payment. If the order includes progress billing, indicate when a billing becomes eligible, approved and collectible.

Stress the plan with a 30-day customer delay and a 10% cost overrun. In the $1 million illustration, a $65,000 overrun and an extra month of payroll may materially affect the financing amount. A lender can evaluate a credible downside case more readily than a forecast with no contingency. If the entire facility must be repaid from one customer, show a backup source of liquidity.

How to compare the true price of contract finance

Different routes quote cost differently: an annualized interest rate, a fee per invoice, a discount from face value, a setup fee or a charge for the time the facility remains outstanding. Translate each offer into cash received, total dollars repaid and the date of repayment. A 2% invoice discount over 60 days should not be described simply as a 2% annual rate. Include legal, monitoring and customer-notification costs, and identify what happens if the buyer pays late.

Consider an illustrative $300,000 draw for 90 days at a hypothetical 12% simple annual rate. Interest would be about $8,877 before fees ($300,000 × 12% × 90/365). If a different provider charges a flat 3% of the $300,000 funded amount, that would be $9,000 before any additional charges, but the two products could differ on advance timing, collection, recourse and collateral. Compare dollars and risk over the actual project timeline, not labels alone.

A lower fee is not valuable if funding arrives after materials must be purchased. Ask how long verification takes and which conditions precedent are outside the borrower's control. The owner should also know whether the security package affects the existing operating line or a future equipment loan. Our collateral ranking explains why the stage of an asset affects a lender's view.

A decision path for an awarded order

1. Confirm a genuine obligation. Is there a signed, effective order with an identifiable buyer and clear acceptance and payment rules?
2. Check order-level economics. Does the price cover cost overruns, finance costs and a reasonable margin?
3. Build the weekly cash schedule. When is the peak deficit and which event repays it?
4. Use existing capacity first if appropriate. Check actual availability, not only the approved operating-line limit.
5. Match the product to the stage. PO finance before delivery, invoice finance after delivery, or a longer facility for a lasting increase in operating capacity.
6. Protect the next contract. Leave enough collateral and headroom for payroll, supplier commitments and normal operations.

If the gap repeats with every sales cycle, compare a business line of credit and working capital loan. If the project calls for permanent equipment, add an equipment loan to the mix. ALOS's nine financing options guide provides the larger product map.

How the problem changes by industry

Manufacturing: A confirmed order can require raw materials, a production run and quality testing before invoicing. The lender may want supplier quotes and evidence that the product can be produced to specification. If the machine needed for the order will serve future customers, separate its purchase from the one-off inventory funding. A term equipment facility may carry that durable asset while a line bridges materials and receivables.

Construction and project services: Progress payments, retainage, change orders and subcontractors create multiple cash dates. A contract face value may be large even though only a fraction has been performed or approved for payment. Show work certified to date, remaining cost to complete, and how a delayed inspection changes payroll requirements. If there is a performance bond or letter of credit, explain what capacity it consumes. An unapproved change order should not be treated as cash certain to arrive.

Wholesale distribution: The time between inventory purchase and accepted delivery can be short, but customer credit terms may extend much longer. An operating line may be well suited if the stock and invoices are eligible and turns are predictable. A concentrated sale to one buyer can still lead to lender reserves. If the supplier can extend terms until after customer payment, compare the commercial cost and supply risk with external finance.

Professional services and government suppliers: Labour may be the principal up-front cost, so there is less physical inventory to pledge. Milestone billing and clear acceptance records become especially important. The lender may focus more heavily on the firm's historical cash flow, contract enforceability and customer collection pattern. The phrase “government contract” should never stand in for the actual executed scope and payment schedule.

One large win can also create one large exposure

An owner may celebrate a contract that doubles revenue, while a lender sees dependence on a single buyer and a peak cash draw. Estimate the percentage of annual sales and receivables represented by the order. A company with $3 million in existing sales that wins a $2 million project may need a different financial structure from one with $50 million in diversified sales. The lender will ask whether managers, systems and suppliers can handle the volume without disrupting existing customers.

Do not rely on a new contract to pay old debts unless the project's cash margin and timing clearly support that use. If a large portion of the contract value is pass-through material cost, gross revenue overstates the cash available to repay a financing facility. Show both the project margin and the company's consolidated monthly cash balance. That distinction is especially important when several orders overlap and the same inventory or invoices are already supporting an operating line.

ALOS · ACCESS TO CAPITAL

Turn an awarded order into a lender-ready financing request.

ALOS helps businesses organize the contract, delivery budget, milestones, receivables and existing security so a lender can understand the funding gap. Lenders assess the proposal and make every credit decision.

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