How builders pay for materials between progress payments
The hardest cashflow problem in building is not winning work, it is paying for materials weeks before the progress payment that covers them arrives. This page explains the two facilities built for that gap, and when each one fits.
The gap, named
A typical residential build runs on four or five progress payments, while suppliers want their money in 30 days or on order. Frames, trusses, steel, windows and lockup materials for a single build can be $80,000 to $150,000 carried out of the builder's pocket between claim stages. Multiply by two or three concurrent jobs and the working capital need outruns most builders' cash long before profitability is the problem.
Trade facility: a revolving materials line
A trade facility is a revolving limit used to pay supplier invoices as they arrive. You draw it invoice by invoice, interest applies only to what is drawn, and each progress payment clears the balance back down. It suits builders and trade contractors buying materials continuously across jobs. Limits are sized to your pipeline, and property backing widens both the limit and the pricing, which as a working rule runs 6% to 9% p.a. property-backed and 9% to 13% without.
Invoice finance: bring the claim forward
Invoice finance advances most of an approved progress claim or invoice as soon as it is issued, rather than waiting the 30 to 60 days for payment. It is priced as a discount fee on the advance rather than an annual rate, and it suits subcontractors whose problem is slow-paying head contractors more than material bills. The two facilities stack: trade facility for materials in, invoice finance for claims out.
What lenders look for
A real pipeline (signed contracts or purchase orders), a clean supplier and subbie payment history, and honest job costing. New building companies are workable when the director has trade history and there is property or a deposit behind the facility. What kills these applications is unexplained ATO arrears; if that is part of the picture, deal with it in the application rather than hoping it goes unnoticed, because ATO debt can be consolidated with property security behind it.
Where to start
See the trade facility page for the materials line or invoice finance for progress claims. Both move in days, not weeks.
Frequently asked questions
How do builders pay for materials before the progress payment?
Most carry it on cash or supplier terms, which caps how many jobs they can run. A trade facility, a revolving line that pays supplier invoices and is cleared back down by each progress payment, is the facility built for exactly this gap.
Is a trade facility the same as a supplier trade account?
No. A supplier account gives you 30 days with one supplier. A trade facility is your own revolving line that pays any supplier, sized to your whole pipeline rather than one merchant's risk appetite.
What does invoice finance cost?
It is priced as a discount fee on each advance rather than an annual interest rate, and the fee depends on your debtor quality and volumes. It is not priced like a term loan, so compare it on the fee per dollar advanced.
Can a new building company get a trade facility?
Workable when the director has trade history and there is property backing or a deposit behind the facility, plus a genuine contracted pipeline.
Size the line to your pipeline
Tell us your pipeline and supplier terms and we will size a trade facility or invoice finance line around it, usually within days.
This article is general information only and not financial, credit, or tax advice. Ventas Asset Lending is a finance broker, not a lender. Approvals are subject to lender assessment. Consider your own circumstances and speak to a qualified professional, including your accountant for any tax questions.