Cash flow: surviving between bills

The most common way a contractor fails is not losing money on a work. It is winning a work that makes money on paper and running out of cash halfway through it. This chapter is a model of where the cash goes, so you can size the gap before you bid rather than discover it in the third month.

Money out before money in

• Before the bid: EMD (1 to 2.5% of the estimate), tender fee, certificates.
• At agreement: the security deposit, 5% of the contract price within 20 days of the LOA, with the EMD adjusted into it (in a reserved tender, nothing now: it comes off the bills instead); stamp duty; the engineer's first month.
• Before the first bill: a month or two of material, labour, machinery hire and fuel; the first RA bill is raised only when enough work is measured.
• From every bill: 2% income tax TDS, 2% GST TDS, 1% cess, royalty if any, and in a reserved tender the 5% deposit; and GST at 18% which you receive and must remit by the 20th of the next month whether or not the next bill has come.
• Bill delay: the standard documents promise payment within 60 days of the bill, softened in June 2025 to "as far as possible" and made subject to grants for progress beyond the programme. In practice three weeks in a good month, three months at year end or when the allocation runs out.

A worked example

A ₹50 lakh percentage-rate road, quoted 5% below (₹47.5 lakh contract value), 6 months, monthly bills, GST exclusive. Firm, so 2% TDS. Assume a 12% margin in the SR, so the real cost of the work is about ₹42 lakh spread evenly: ₹7 lakh a month.

The lesson: a ₹47.5 lakh contract with a ₹5 lakh margin needs about ₹10 to ₹12 lakh of cash in hand or in credit lines to run, for the whole six months, and the margin arrives thirteen months after completion. Bid it with ₹4 lakh in the bank and the third month's labour is unpaid.

Sizing the gap

A rough rule for a Karnataka works contract billed monthly with normal treasury delay: working capital ≈ 2 months of cost + the 5% deposit + one month's GST (the EMD becomes part of the deposit). For a contract value C with a cost of about 0.85C over M months: 2 × 0.85C ÷ M, plus 5% of C, plus 1.5% of C. For the ₹47.5 lakh, 6-month road: ₹13.5 lakh + ₹2.4 lakh + ₹0.7 lakh ≈ ₹17 lakh in a bad month, ₹11 lakh in a good one. In a reserved tender the deposit comes off the bills instead, and the first months need about ₹2 lakh less.

The levers

• Bill often and early. Get the first RA bill measured as soon as the contract allows; ask the AE for the measurement date in advance.
• Match invoices to passing. Invoice the department when the bill is passed, not when measured, so GST is not due before cash.
• Supplier credit. 30 to 45 days from the cement and aggregate dealer, in writing, is worth more than a bank line. Registered dealers, so the credit is real.
• A bank guarantee for the deposit once a bank knows you; it turns ₹2.4 lakh of idle cash into a commission.
• A cash credit or overdraft against the contract, with the LOA and agreement as the basis; banks lend against government receivables, at a margin.
• Do not bid two works that peak in the same months unless the second is funded.
• {{mobilisation-advance|Mobilisation advance}} where the document carries it: 5% of the contract price, interest-free, against a bank guarantee, on K/W-4 works (above ₹1 crore) and, since 2024, on K/W-3 works reserved for SC, ST and Category-I/II(A) contractors. Drawn before 20% of the contract period, repaid at 7.5% of each bill once payments reach 15%.
• Ask how the work is funded before signing. A work under a scheme whose allocation for the year is exhausted will pay next April.

Tracking it

One sheet per work: every bill with its measurement date, passing date, payment date and net amount; every deduction; every credit as it appears in 26AS or the GST ledger; deposit and EMD with their release dates. Signed-in BiddingView users keep this under Contracts, with bills and documents filed against each work, and a bid-capacity figure that updates as commitments change.