Managing cash flow for trades: Deposits, variations and retentions
Updated: 1 day ago
Managing cash flow for trades means funding each job’s labour and materials while allowing for the approval, payment and retention conditions attached to the contract.
A full work calendar does not guarantee enough cash for the next wage run. Deposits, progress claims, variations and final payments can follow different rules, and the business may carry costs while one of those steps remains unresolved.
This Australian guide applies the working capital needs framework to job-level timing. Contract and security-of-payment rules vary by jurisdiction and type of work. Obtain advice on the requirements applying to the actual job.
The short answer
Map each job from deposit through materials, labour, claims and final release.
Distinguish work completed, claims submitted, amounts approved and cash collected.
Track variations and retentions separately from ordinary receivables.
Use lawful, contract-specific deposit and payment arrangements.
Combine job forecasts so one project’s deposit is not mistaken for surplus cash.
Start cash flow for trades at the job level
For each material job, list the contract price, expected direct costs and payment milestones. Identify the earliest cash commitment, such as ordering custom materials or booking subcontractors.
Then show when the business can submit a claim and what must happen before payment. A stage completed on site may still need documentation, inspection or certification under the agreement.
The government’s payment terms guidance supports clear billing arrangements. It should be read alongside the specific construction contract and applicable laws, not used to override them.
Compare actual progress with the original job budget. A profitable estimate can deteriorate when rework, extra labour or material price changes increase the cash needed to finish the job.
Treat deposits as money with a delivery obligation
A deposit may help fund mobilisation and materials, but it also relates to work the business still needs to perform. Do not assume the full amount is available for unrelated spending.
Deposit rules can differ for regulated residential building work and across states and territories. Ask your solicitor or relevant regulator about applicable caps, documentation and handling requirements. Do not adopt a generic percentage from another industry or jurisdiction.
The ACCC’s contracts guidance provides general context for business obligations. Specific building and consumer requirements may add protections or restrictions that need professional review.
In the cash plan, keep the remaining cost to complete visible after receiving a deposit. This helps prevent a healthy bank balance from concealing obligations on several unfinished jobs.
Separate variations from approved billing
Extra work requested on site may require a particular approval process before its price and payment become enforceable. Record the request, scope, cost and agreed treatment using the contract’s requirements.
Do not treat an unpriced or disputed variation as a confirmed receipt. It may consume labour and materials now while its collection remains uncertain.
Assign someone to follow up outstanding approvals and reconcile variations to invoices. A job report should distinguish approved variations, submitted requests and work performed without resolved commercial terms.
Where a variation is disputed, seek legal advice early. The operational need to finish the project does not answer what the contract permits or what evidence is required to support a claim.
Understand retentions as a separate cash item
If the contract allows retention, part of a claim may be withheld until stated conditions are met. The release timing can differ from ordinary invoice terms and may extend beyond practical completion.
Record the amount retained, the contractual basis and the steps required for release. Avoid leaving the balance in a general overdue list that assumes it will be collected next week.
The business may need to complete defects work or provide documents before final release. Include any remaining costs in the forecast as well as the expected receipt, based on advice about the agreement.
Ask your accountant and solicitor how retentions should be recorded and pursued. Retention money is not automatically available to fund current payroll simply because it relates to work already performed.
A worked example: The claim amount is not the next receipt
Consider an original hypothetical $50,000 progress claim. Assume $5,000 is retained under the illustrative contract and a $6,000 variation remains unapproved and is not included in the accepted claim.
The expected receipt from the accepted claim is $45,000 before any other relevant adjustments. The unapproved variation should not be added as certain cash merely because the associated work has been completed.
If $30,000 of labour and supplier payments falls due before that receipt, the business needs an identified source for those payments. Later retention release does not remove the earlier gap.
These amounts are a cash-planning example, not legal retention percentages, permitted deposit levels or an entitlement calculation. The actual contract, work and jurisdiction determine the relevant rights.
The 13-week forecast guide helps map that sequence. The government’s cash flow statement guidance supports recording money on realistic collection and payment dates.
Keep payment rights and forecasting separate
Security-of-payment processes can provide rights and deadlines for eligible construction claims. The NSW Government’s security-of-payment FAQs explain aspects of the NSW system. Other jurisdictions have their own rules.
Do not use a general blog as a claim notice, deadline calculation or guide to every legal requirement. Seek advice promptly on the applicable process, particularly when a claim or payment schedule is disputed or overdue.
At the same time, a legal entitlement is not the same as cleared cash on a particular date. The cash forecast should identify uncertainty while the business takes the appropriate steps to enforce its rights.
Keep evidence of submissions, service, schedules and correspondence. Clear records help advisers assess the position and help the owner understand which forecast receipts remain unresolved.
Match funding to the actual stage of work
An invoice facility may treat completed debts, progress claims, uncertified work and disputed amounts differently. The invoice finance guide explains why the underlying receivable and agreement matter.
The working capital application guide helps organise contracts, current accounts and forecasts for a funding discussion. A strong order book does not establish that every stage is eligible or that funds can be drawn immediately.
Include any finance payments and costs in the job and business forecasts. The working capital costs guide considers why an earlier cash inflow must be assessed alongside the repayments it creates.
Combine all jobs in one operating forecast. A profitable project may have its lowest cash point in the same week as another project’s material order, creating a larger business-wide requirement than either job shows alone.
Review exceptions before the next commitment
At the weekly meeting, review overdue claims, unapproved variations, retentions awaiting release and jobs whose remaining costs exceed the budget. Give each issue an owner and a dated action.
Before accepting another large job, confirm the business can fund overlapping commitments. More work can increase the gap if additional labour and materials arrive before the associated receipts.
If the forecast cannot meet obligations as they fall due, seek advice promptly. An application for finance or an expected claim recovery does not by itself resolve the current cash position.
Frequently asked questions
Is a customer deposit profit I can spend freely?
No. Consider remaining delivery costs, the contract and applicable laws. Obtain advice on any restrictions affecting the money.
Should an unapproved variation be forecast as certain cash?
No. Identify its status and use a realistic collection assumption. Follow the contract’s approval and claim requirements.
Can retention be treated like an ordinary invoice?
Its release conditions and timing may differ. Track it separately and obtain advice on the actual agreement.
Does one security-of-payment process apply nationally?
No. Rules vary by state or territory and work type. Confirm the applicable requirements and deadlines with a qualified adviser.
Follow each job through to collected cash
Use job-level records to see what stands between completed work and payment. Combine those records with the full operating forecast before taking on new commitments or finance payments.
Planning Your Business Cash Flow?
Fairlane Finance can help you assess possible funding structures against your business’s cash-flow timing.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
