Working Capital Structured For a Doubling Contract Book

New Plymouth Civil Engineering Firm – Working Capital for a Doubling Contract Book

A New Plymouth civil engineering business had just won a contract that would double its turnover. The win was a strong result and a clear signal of where the company was heading. The piece that needed thinking through was how to fund the work between winning the contract and getting paid for it.

The cash flow gap

Big contracts come with a familiar pressure. Materials, plant, labour and subcontractors all need paying long before the first invoice clears. For a business about to double in size, that gap stretches further than usual. Around $1 million in working capital was needed to bridge it without putting pressure on existing operations.

A $1 million overdraft was the obvious starting point. Once Finance Link looked at how the contract was actually going to run, the picture broadened.

Working through the options

Finance Link sat down with the team and worked through the shape of the contract. A portion of the spend was sitting in Australian dollars, mostly for plant and supplier costs across the Tasman. Drawing AUD from a New Zealand overdraft would have meant moving money across at whatever exchange rate sat on the day, and absorbing the cost each time.

A different facility suited that part of the spend. A trade finance line in Australian dollars lets a business pay AUD suppliers in AUD, without each transaction triggering a currency conversion. It also smooths timing, because the facility carries the payment until contract revenue catches up.

The recommendation came together as two facilities working alongside each other:

• A commercial flexi facility of $1 million in New Zealand dollars, available for general working capital
• A trade finance line of $400,000 in Australian dollars, sitting alongside it for AUD spend

Each one does what it does well. Together they give the business room to run the contract without stretching either side.

The outcome

Both facilities are now in place. The commercial flexi covers the day-to-day working capital needs as the contract ramps up, and the AUD trade finance handles supplier payments across the Tasman without exposing the business to currency swings between billing and payment.

The combined buffer does more than fund the current contract. It gives the business room to take on the next opportunity that lands, which on the current growth track is likely to come sooner rather than later. Funding that fits the way the business actually trades makes the next decision easier rather than harder.

For owners managing rapid growth, the question worth asking is not just how much working capital is needed. It is what shape the funding should take, given how the contract is actually structured.