Valepine Business Capital, a small-business funding broker in Oshkosh, Wisconsin, explains how contractors and service firms carry payroll between starting a new contract and receiving the first payment. Winnebago County, WI had 348 construction employers in 2023, most of them small. Working capital, a line of credit and a merchant cash advance each bridge the gap differently. Partners decide.
Why the gap hits small contractors hardest
Winnebago County, WI had 348 construction employer establishments in 2023, with 5,230 employees and $442.5 million in annual payroll. 206 of them, 59.2%, had fewer than five employees (U.S. Census Bureau, County Business Patterns 2023). Among specialty trade contractors, 136 of 244 were that small.
A crew of three or four can cover a week of wages from the account. A new contract that needs extra hires and materials for six or eight weeks before the first payment is a different matter.
Map the gap week by week
| Week | Cash out | Cash in |
|---|---|---|
| 1-2 | Mobilization, materials, payroll | None |
| 3-4 | Payroll, materials | First invoice sent at end of week 4 |
| 5-8 | Payroll | Customer's payment terms run |
| 9 | Payroll | First payment, less any retainage |
The longest stretch with cash going out and nothing coming in, here eight weeks of payroll, is the figure to fund. Retainage held back from each payment lengthens it further. Build your own version from the contract's actual payment terms.
Three ways to bridge it
Working capital provides a lump sum repaid on a fixed schedule. It suits a single contract with a known first payment date. Check that the repayment schedule does not start before the first payment arrives.
A line of credit lets you draw each payroll as it falls due and repay when the customer pays. It suits firms that face the gap on every new job, and you pay interest only on what is drawn.
A merchant cash advance is not a loan: a funder buys future receipts and collects a share of sales. It is a poor fit for contract work paid by invoice, since collections may start before the invoice is paid.
Retainage and progress billing
Commercial contracts often hold back a share of each progress payment until the job is complete. That held-back money, retainage, is earned but not yet paid, and it can sit on the books for the length of the job. A contractor running two or three jobs with retainage can show healthy receivables and still be short on payroll.
Partners know this. Bring the retainage terms from each contract, and show how much is held on each job, so the partner can see the difference between work billed and cash collected.
Sizing the request, not just finding it
- Total the payroll, including payroll taxes, for every week in the gap.
- Add materials and equipment rental that must be paid before the first payment.
- Subtract what the business account can cover without dropping below a working balance.
- The remainder is the request. Rounding it up for comfort raises the cost.
With 206 of the county's 348 construction employers under five employees in 2023 (County Business Patterns), for most crews in Winnebago County, WI this arithmetic fits on one sheet.
Papers a partner will want for the contract
- The signed contract with its payment schedule and any retainage terms
- Your timeline, like the one above, with real dates
- Recent bank statements and the current receivables list
- Existing debts and any liens
Partners lend against the contract's cash flow, so the clearer the payment terms, the easier the review.
Paying wages with working capital
Yes. Payroll is one of the most common uses of working capital and of credit lines. What partners want to know is where repayment comes from. A signed contract with a payment date is a strong answer; a business that runs short on payroll every month needs a different conversation.
Contractor-specific questions, including equipment, are on contractor and construction financing. Further Valepine articles sit on the blog.
By Valepine Business Capital · Updated