How to improve cash flow in a growing business

The next contract looks profitable. The awkward question is whether the business can fund it before the customer pays. Growth can increase the amount tied up in labour, stock and work in progress before it adds a dollar to the bank.

Improving cash flow is therefore not only a collections exercise. It starts with the work you accept, the terms you agree and the commitments you make to deliver it. A bigger order book is helpful only when the business can carry the payment sequence.

Map the cash gap before accepting the work

Take one proposed contract and list the actual payment events. When must materials be ordered? When are wages and super funded? What approval allows an invoice to be raised? When is the customer likely to pay?

Use those dates rather than dividing a project evenly across months. A milestone at practical completion can create a very different funding requirement from monthly progress claims, even when both contracts have the same price.

Fictional project: cash needed before the final receipt

Event	No deposit	$20,000 deposit received first
Deposit before delivery spending	$0	+$20,000
Materials paid before completion	-$25,000	-$25,000
Delivery labour and other cash costs before collection	-$35,000	-$35,000
Peak project funding gap before final receipt	$60,000	$40,000
Remaining customer receipt	+$100,000	+$80,000

This simplified example excludes GST, overheads, financing costs and other business movements. It assumes the deposit is received before costs are paid. The project leaves $40,000 before the excluded costs in either case; the deposit changes the funding required, not the underlying price or delivery cost.

Negotiate the operating terms, not just the price

Consider deposits, progress claims, shorter approval steps or a delivery schedule matched to payments where commercially and legally appropriate. Clarify what evidence the customer needs before accepting an invoice.

A nominal 30-day term can become much longer when an invoice is missing a purchase order or waits weeks for sign-off. Agree who approves variations and when they can be billed. The government’s cash-flow guidance includes earlier invoicing and clearer payment terms among the available levers.

A deposit also creates an obligation to deliver. Do not treat the cash as profit that is free for another purpose. Track the work and costs still attached to it.

Measure the cash absorbed by a larger business

Suppose monthly credit sales rise from $100,000 to $150,000 and customer collection remains about 30 days. In a simplified steady-state illustration, receivables may increase by around $50,000. If collection stretches towards 45 days, the amount tied up can rise further.

That is an estimate, not a substitute for invoice-level forecasting. Seasonality, GST, deposits and the timing of sales can change the result. It still shows why maintaining the same collection habit may require more funding as the business grows.

Look at stock and unbilled work as well. A lower unit price from bulk purchasing is not automatically a better cash decision when the extra stock will sit for months.

Test growth against the whole business

Put the proposed contract into your existing 13-week cash forecast. Rent, existing payroll, tax, debt repayments and previously accepted jobs still need funding. Check the lowest forecast balance, not only the closing balance at the end of the project.

Run a second case with a realistic collection delay and a delivery cost overrun. Then identify a decision you would change: stage the work, reduce the stock order, negotiate terms or arrange suitable funding before committing.

Do not use supplier arrears as an invisible funding plan

Negotiate supplier terms rather than assuming overdue payment is harmless. A supplier stopping deliveries can turn a manageable cash gap into a missed customer milestone. Any finance option also needs assessment of cost, repayment ability, security and conditions.

The cash-flow management guide and Business Queensland resources provide useful starting tools. The commercial question remains yours: does this work earn enough, and can the business fund it under a plausible downside?

Our Virtual CFO support can test that question around a specific contract or a continuing growth plan. The aim is not to slow every opportunity. It is to know which opportunities the business can afford to deliver.