Every mechanical and plumbing contractor doing project work runs the same mismatch.

Payroll goes out every week. The supply house wants payment in 30 days. Equipment vendors want a deposit before they’ll even put a boiler or an air handler into production.

Meanwhile the money coming back moves on the owner’s schedule, not yours: pay apps go in at month end, get reviewed, get approved and get paid 30 to 90 days later. Then 5% or 10% of every approved dollar is held as retainage until the project closes out, sometimes months after your last tech leaves the site.

A profitable job can leave you short of cash for most of its life. That’s not a sign the business is broken. It’s how the payment structure works. The question is how you cover the gap, and what it costs you to cover it.

Measure the Gap Before You Bid

Most contractors feel the gap. Fewer put a number on it. Before signing a contract, run one job on paper: weekly labor burden, material deliveries by month, equipment deposits and progress payments to vendors, sub payments if you carry any—and on the other side, the draw schedule with realistic timing, not what the contract says. Add retainage. What comes out is the peak amount of your own cash tied up in the job at any one time.

Mechanical work makes that number bigger than most trades. Long-lead equipment is the reason. A chiller or a custom AHU can require 30% down at release and the balance at shipment, and you may not be able to bill it until it’s stored on site or installed, depending on how the contract treats stored materials. Get stored-materials billing into the contract whenever the owner will allow it. It’s the single cheapest fix on this list because it costs nothing.

The peak-cash number matters more than the margin. A 12% margin on a $1.5 million mechanical scope is $180,000 at the end. But if the job needs $250,000 of your cash in month three, and two other jobs are doing the same thing, the margin is theoretical until you solve for the $250,000. Growing shops hit this harder than shrinking ones. A full backlog and an empty account are usually the same story.

The Four Realistic Tools

There are four ways firms actually bridge it. Each fits a different shape of gap, and each costs something different.

1. Supplier Terms. The cheapest money in this trade is your supply house. Net 30 is standard, net 60 is negotiable with history, and many suppliers offer an early-pay discount — commonly 2% for paying within 10 days. Take that discount whenever you can. Skipping a 2% discount to hold cash for an extra 20 days works out to roughly 36% annualized. Nobody sends you a rate sheet for it, but it’s financing all the same.

The limits: terms only cover material, they do nothing for payroll, and they run on relationship. A new vendor starts you at cash or a short net. And on jobs heavy with copper, steel pipe and sheet metal, price volatility means the supplier is already carrying risk for you — don’t burn the relationship stretching payments you didn’t negotiate.

2. A Bank Line of Credit. For a contractor with two or three years of clean financials, a line of credit is the right primary tool. Draw what you need, pay interest only on the balance, repay when the pay app clears. Pricing typically runs a few points over prime, which makes it the least expensive borrowed money available for the payroll side of the gap.

The catch is qualifying. Banks underwrite the balance sheet, not the backlog. A shop that just doubled revenue often looks worse on paper than it did the year before, because growth ate the cash. Bonding capacity and a credit line tend to come out of the same review, so a thin balance sheet can cap both at once. And lines get trimmed when a lender turns cautious on construction — usually at the exact moment you need the room.

3. Receivables Factoring. Factoring means selling an approved pay app or invoice at a discount and getting most of the money now — typically 70% to 90% up front, the rest when the GC or owner pays, minus the fee. Fees generally run 1% to 4% of the invoice per 30 days outstanding. On a 60-day pay app, that’s 2% to 8% of the invoice.

Two things to understand.

First, the factor is underwriting whoever pays the invoice, not you. That’s why it works for newer companies that can’t get a bank line, and why factors prefer contractors billing large GCs or public owners.

Second, construction paper is harder to factor than most, because an invoice isn’t final until it’s approved, and retainage is never factorable. Know whether the arrangement is recourse or non-recourse before signing, because that decides who eats a slow payer.

4. Equipment Financing. Trucks, vans, threading machines, press tools, lifts, fabrication equipment—anything with a serial number and a resale market can usually be financed against itself, with terms of three to seven years and rates well below unsecured money because the lender holds collateral. The strategic point most shops miss: financing the iron frees your cash for the part of the job nothing else covers, which is labor. Paying cash for a $70,000 service van while payroll runs on a factoring line is solving the cheap problem with expensive money and the expensive problem with cheap money—backwards.

Match the term to the asset’s working life, and read the dealer paper. Captive financing is sometimes genuinely cheap and sometimes padded; compare it against one outside quote before signing.

What Over-Leveraged Actually Looks Like

Firms rarely get over-leveraged in one decision. It’s stacking: a line at its limit, plus factoring on the receivables, plus fast short-term money on top, each covering the one before it. The tell is when new financing services old financing instead of funding work. Quick online advances belong in that warning too — they’re the most expensive option available to a contractor, and they only make sense for a short, specific gap with a visible end. Used to carry retainage or a losing job, they make the hole deeper.

A few rules that hold up:

Match the tool to the length of the gap. A 90-day problem shouldn’t take 12 months to pay off.

Never finance retainage. It’s the last money in, the slowest to arrive and the likeliest to be disputed. Plan to carry it out of margin.

Total the real cost per job. Every skipped discount, fee and interest charge goes against that job’s margin. If financing eats a third of the profit, either the bids are priced wrong or the company is growing faster than its balance sheet allows.

Graduate on purpose. Factoring for a young shop is a bridge to qualifying for a bank line, not a permanent state. Three years in and still paying the expensive rate means the plan needs to change.

The gap between draws never goes away. The mechanical contractors who handle it well aren’t the ones with the most financing. They’re the ones who know the size of the gap on every job before they sign, and pay the least to cover it.