Building Materials Finance NZ: How Builders Pay for Supplies Before the Client Pays
NZ builders usually fund materials with a mix of a merchant trade account (often due on the 20th of the month following), client deposits, progress claims, and an overdraft for the gaps. When a large materials invoice lands before the client's progress payment, the usual options are invoice finance on your payment claims, a short-term loan, or paying that supplier invoice in instalments.
Why Materials Squeeze a Builder's Cash Flow
A builder's cash problem is timing, not profit. You commit to materials early in a job and get paid in stages afterwards. Four things widen the gap:
- Big early orders. Framing, roofing, cladding and joinery are ordered near the start, and some joinery and window suppliers ask for a deposit when you order.
- Payment claim timing. Under the Construction Contracts Act 2002, if the contract doesn't set a due date, payment is due 20 working days after a payment claim is served. That's about four weeks, and longer over public holidays.
- Retentions on commercial work. On commercial contracts, a head contractor may hold back retention money until the job is finished. It must be held on trust for you, but you can't spend it in the meantime.
- Merchant due dates don't move. If your account is due on the 20th and the client pays on the 28th, you either pay from your own cash or your account goes overdue, which can put it on stop mid-job.
Official guidance: building.govt.nz on the Construction Contracts Act, including the retention money rules.
Worked Example: A $180,000 Renovation
Illustrative figures: a Tauranga builder signs a $180,000 (including GST) renovation with a homeowner. They take a 10% deposit and claim monthly. In March they order $38,000 of framing, roofing and cladding from their builders' merchant on a 20th of the month following account, so it's due on 20 April.
| Date | Event | Cash position on this job |
|---|---|---|
| 1 March | Deposit received | +$18,000, mostly spent on consent costs, scaffolding and labour |
| March | Materials delivered, labour paid weekly | Labour comes from the deposit and working capital |
| 31 March | Payment claim for March work served | $52,000 claimed, due late April |
| 20 April | Merchant invoice due | $38,000 out, claim not yet paid |
| About 29 April | Client pays the claim | +$52,000 |
For roughly nine days the builder is $38,000 short. That's on one job, and most builders run two or three at once. If the client disputes part of the claim, or the job runs late, nine days becomes six weeks.
Your Options for Funding Building Materials
| Option | How it helps | Cost | Watch out for |
|---|---|---|---|
| Merchant trade account | Up to about seven weeks between buying and paying, depending on when in the month you buy | Free if paid on time | A credit limit set for normal months, and a director's guarantee on the application |
| Client deposit and milestone payments | The client funds materials before you buy them | Free | Must be agreed in the contract, and some clients push back on large deposits |
| Shorter claim cycles | Claim fortnightly, or on a materials-delivered milestone | Free, plus more admin | The client has to agree to it in the contract |
| Overdraft | Covers short, uneven gaps | Interest on what you use, plus fees | Banks often want property or a guarantee as security |
| Invoice finance on payment claims | Advances cash against claims you've issued | Fees on each advance | Not every provider accepts construction claims, especially residential ones |
| Short-term business loan | A lump sum for a big job | Interest and establishment fees | You keep paying even if the job stalls |
| Supplier invoice in instalments | A provider pays the merchant in full, and you repay monthly | An instalment fee per invoice | Subject to approval. Best for one large invoice, not as a permanent credit line |
The cheapest fix is usually in the contract: a materials deposit, or a claim tied to materials delivered on site. Do that before you reach for finance. For the merchant side, see what a trade account is and how trade account credit limits work.
Same Problem, Different Trades
Plumbers and electricians hit the same gap on a smaller scale, usually around one expensive item. A plumber fitting a $6,500 heat pump hot water cylinder, or an electrician buying an $8,000 switchboard and solar inverter for a commercial fit-out, pays their wholesaler on the 20th whether or not the customer has paid. On smaller jobs the fix is usually to invoice materials on delivery, or take a deposit for any item over a set value.
Where PaidTerms Fits
PaidTerms suits the moment in the example: one large materials invoice from an NZ supplier, due before the client's money arrives. You apply with that invoice. If you're approved, PaidTerms pays your merchant or supplier in full, so your account stays clear and the next order isn't held up. You then repay over 3, 6 or 9 months. Fees start from 3.95% for three instalments and are shown before you confirm.
It isn't a replacement for a merchant account or an overdraft for everyday buying. Use it when one invoice is out of step with your claims. If the problem is every job, look at your contract terms first. More options are in the Stock Finance guide.
Frequently Asked Questions
How do builders pay for materials before the client pays?
Most use a builders' merchant trade account, a client deposit and regular payment claims, with an overdraft to cover gaps. For a large order that lands before a progress payment, some use invoice finance, a short term loan or supplier invoice instalments.
Can I ask a client to pay for materials upfront in NZ?
Yes, if it is agreed in the contract. Many builders take a deposit or include a materials milestone, especially for joinery and other items ordered well in advance. Make the amount and timing clear in writing before work starts.
When is a payment claim due under the Construction Contracts Act?
On the date set in the contract. If the contract does not set one, payment is due 20 working days after the payment claim is served. The client must respond with a payment schedule if they intend to pay less than the claimed amount.
What happens if I can't pay my builders merchant on the 20th?
Call them before the due date. A late account can attract fees and be put on stop, which can hold up materials for every job. Agreeing a short extension or funding that invoice another way protects the account.
Is there finance for plumbing or electrical supplies?
The same options apply: wholesaler trade accounts, deposits on big items, an overdraft and supplier invoice instalments. For single expensive items, invoicing the customer for materials on delivery is often the simplest fix.
