Winning a new contract account is good news. Paying the people who deliver it before the client pays you can still put pressure on cash. The useful question is not simply, “What are the client’s payment terms?” It is: What is the largest cash shortfall between the first worker payment and the client receipts that will cover it?
You can estimate that shortfall with a dated cash forecast. Enter each expected worker payment and other cost on its actual due date. Enter client receipts when you realistically expect the money, allowing for timesheet approval and invoicing delays. The largest negative running balance is your estimated peak funding need. Add a separate allowance for late payment and the costs the simple model leaves out.
Why a profitable desk can need cash
A contract desk may pay workers weekly while its clients settle invoices weeks later. The desk can have a healthy margin on every placement and still need cash to bridge those dates. Growth can widen the gap: each additional contractor creates another payment before the corresponding client receipt arrives.
Invoice funding can bring cash forward against eligible invoices. It does not automatically pay for every cost before an invoice exists. The British Business Bank’s invoice-finance guide explains that available funding depends on the receivables and the provider’s criteria. Sonovate’s funding page describes funding against eligible contract and temporary invoices under an agreed arrangement. Check the point at which an invoice becomes eligible, the amount available and when funds actually reach your account.
A worked example: ten new contractors
Suppose an agency adds ten contractors. Each works five days a week. The agency pays each worker £250 per day and bills the client £350 per day. The agency pays workers every Friday, raises an invoice for approved work each Monday, and expects the first client receipt eight weeks after that first Monday invoice. The first invoice is raised on the Monday after the first Friday payment. The first receipt arrives on Monday of week ten, eight weeks after the invoice on Monday of week two. There are therefore nine Friday pay runs before that receipt. Assume later weekly invoices are also paid eight weeks after issue and work continues at the same rates.
| Item | Calculation | Illustrative amount |
|---|---|---|
| Worker payments each week | 10 × 5 × £250 | £12,500 |
| Client invoice each week | 10 × 5 × £350 | £17,500 |
| Worker payments before first receipt | 9 × £12,500 | £112,500 |
With no opening cash and no funding, the agency needs £112,500 to meet those nine worker pay runs before the first client receipt. That is a timing illustration, not a funding quote or the total cost of running the desk. It excludes employer costs where applicable, holiday pay, pension contributions, VAT, operating expenses, funding charges, late payment and any cash already coming in from other clients. The example also assumes the work is approved and invoiced on schedule. Change any of those inputs and the answer changes.
To see how sensitive the result is to timing, each extra week before the first receipt adds another £12,500 of worker payments in this example. A two-week timesheet or invoice delay would add £25,000 to the pre-receipt worker-payment requirement if all else stayed the same. Conversely, existing cash reserves or available funding would reduce the amount the agency needs to source elsewhere. Do not count invoice funding until the relevant invoice is eligible and the agreed funds are available.
Build the forecast around dates, not averages
A spreadsheet with one row per expected cash movement is enough to start. Use the contract you are considering, rather than a generic “60-day terms” assumption.
- Map the work. For each contractor, record start date, expected days or hours, pay rate, charge rate and likely interruptions.
- Map approvals and invoices. Record when timesheets should be approved, when invoices can be raised and which client or purchase-order rules could delay either step.
- Map cash out. Put worker payments, employer costs where applicable, taxes, overheads and any setup costs on their real due dates.
- Map cash in. Use the payment dates you expect from each client, then test a later-payment case. Treat an invoice-finance advance separately from the final client settlement so you do not count the same invoice twice.
- Find the peak gap. Start with the cash allocated to this desk, add receipts and subtract payments in date order. If the lowest running balance is negative, its absolute value is the additional cash needed before your contingency. If it stays at or above zero, the forecast shows no shortfall before that allowance.
The margin between your bill rate and worker pay rate is not the same as cash available for Friday’s pay run. It may arrive much later, and it must also cover the costs excluded from the simple example.
Stress-test the decision before you accept more work
Run at least three versions of the forecast: expected timing, one late client payment, and a faster ramp-up than planned. Ask what happens if an invoice is disputed or only part of the new account is eligible for funding. If several large invoices depend on one client, model that concentration explicitly. Use actual facility terms for any advance, fees, reserves and credit limits rather than assuming every invoice is funded in full.
The result helps you decide whether existing cash is enough, whether to change the contract or payment process, or whether additional working capital is needed. Funding can solve a timing gap; it cannot make an unprofitable contract profitable. If you are weighing facilities, compare the cash available on the dates you need it, the total cost and what happens when a client pays late.
Sonovate can discuss funding against eligible invoices in the context of your clients, payment terms and processes. Bring a forecast with actual pay and invoice dates to that conversation. It will tell you more than a single “how much funding?” figure.