Funding a construction company — retentions, progress claims and the cash gap

Since 5 October 2023, retention money on a New Zealand construction contract has to be held on trust, in a dedicated bank account, separate from the head contractor's own working capital — protecting a subcontractor if the party holding it becomes insolvent. What that regime does not do is change when the money actually comes back. Retention is still typically held for months after the work is finished, and the ordinary construction cash gap — funding labour and materials up front, claiming progressively, waiting on 30-to-90-day payment terms — is exactly the same gap it always was. Debtor finance and a dedicated progress claims facility are built for that timing problem; a generic invoice finance product, worth knowing before you apply, often isn't.

Key Takeaways

The retention money trust — what changed on 5 October 2023

The Construction Contracts (Retention Money) Amendment Act 2023 received Royal assent on 5 April 2023, and by its own commencement clause "comes into force on the day that is 6 months after the date on which it receives the Royal assent" — landing exactly on 5 October 2023.

From that date, the Act states plainly: "Retention money is trust property, held on trust by party A for party B, and party A must deal with it in accordance with this subpart." Party A is the payer — typically the head contractor; party B is the payee — typically the subcontractor. What matters most about this is how the trust actually comes into existence: it applies automatically. The amount becomes retention money "whether or not party A has withheld any amount from party B", and regardless of whether it's been calculated, scheduled, or already paid. In other words, the protection doesn't depend on the head contractor doing the paperwork correctly — the trust exists the moment the contract allows the withholding, by operation of the Act itself.

The mechanism that actually keeps it separate

A trust that exists only on paper isn't worth much, and this one is built with a specific mechanical safeguard. Party A must "deposit retention money into a bank account that complies with" the Act "as soon as practicable after it becomes retention money", and keep it there until it stops being trust property — unless an equivalent amount is covered by a complying instrument instead. That account has to be used solely for holding retention money, and the account holder has to tell the bank exactly what the account is for: retention money held on trust under the Act.

That's the actual answer to "what does this guarantee me" — it's not a promise, it's a structural requirement that the money sits somewhere separate from the head contractor's general working capital, specifically so it isn't available to be spent on something else, or swept up if the business runs into trouble.

When you actually get it back

Retention money stops being trust property in a defined set of circumstances: when it's paid to party B, when party B gives up the claim in writing, when it's used to remedy contract defects (which requires at least 10 working days' prior written notice to party B first), or when it otherwise ceases to be payable. None of those release events happen faster because the trust exists — they happen on the same timeline your contract already set, whether that's practical completion, the end of a defects liability period, or whatever specific trigger your agreement uses.

The teeth behind it

This isn't a soft requirement. Failing to keep retention money as required is an offence, carrying a fine of up to $200,000 per offence for the company, and up to $50,000 per offence for each director if the company is a body corporate — though a "took all reasonable steps" defence is available. That's a real deterrent for a head contractor tempted to treat retentions as free working capital, which is precisely the practice this regime was built to stop.

What this does not fix about cash flow

Here's the distinction worth sitting with properly. The trust regime answers one question — will the money you're owed still exist, protected, if the party holding it runs into trouble — and it answers that question well. It does not answer a completely different question: when do you actually get paid for the work you've already done and funded.

Retention is, by design, held back until after the work itself is finished — typically released at practical completion or after a defects liability period runs its course. A subcontractor has already paid its crew, bought its materials, and carried the cost of that slice of work for the entire time between doing it and the retention eventually being released, trust or no trust. Being protected against insolvency risk is genuinely valuable, and it's a real improvement on the position before October 2023. But it's a different problem from the ordinary funding gap that exists on every progress-claim job regardless of how well the retention itself is protected.

The actual gap: wages weekly, claims on 30-90 day terms

This is where the structural cash-flow problem actually lives. As one funder describes it for construction labour: "staff pay often occurs weekly or fortnightly, while clients only pay invoices on 30, 60 or even 90 day terms" — a gap that can run up to three months between paying your people and being paid yourself. Layer retention on top of that, held back even further beyond the payment term itself, and the total time between funding the work and seeing all of the money for it stretches out considerably. This is the gap the retention trust was never designed to close, and it's the gap that actually needs a funding product built around it.

Which funding products actually fit a progress-claim business

Debtor finance and invoice finance are built specifically to bridge the gap between doing work and getting paid for it — advancing a percentage of an invoice's value rather than making you wait out the full payment term. One version advances up to 85% of outstanding invoice value specifically to cover payroll on a weekly or fortnightly schedule, without waiting for the client's 30-to-90-day payment term to run its course.

There's a real caveat worth knowing before assuming this is a straightforward fit for a progress-claim business. A debtor finance product typically requires that "invoices must relate to goods delivered/services fully completed", and specifically states "invoices older than 90 days cannot be funded." A progress claim, by its nature, is an invoice for partially completed work, issued in stages as the job progresses — not a single invoice for a fully finished job. That distinction matters: a dedicated Invoice Finance product page from the same lender states directly that "businesses that issue invoices in stages, in advance or to consumers may not be eligible" for its standard product. A progress-claim business is, almost by definition, exactly the kind of business that invoices in stages.

The practical answer isn't that invoice finance is off the table — it's that the generic product isn't necessarily the right one. The same lender's debtor finance page notes directly that "progress claims can also be funded", pointing to a separate, dedicated progress claims facility rather than the standard invoice finance product built around completed-service invoicing. If you're running progress claims, ask specifically for that product, not the general invoice finance line, since eligibility and structure genuinely differ.

For the general product, where it does fit, eligibility runs along familiar lines: B2B trade-credit invoicing, at least six months' trading history, creditworthy New Zealand-based customers, at least $10,000 a month in invoiced revenue, and NZ-registered operations. And structurally, it isn't a fixed loan at all — "no fixed monthly repayments", with the facility repaid when the customer pays and scaling with invoice volume rather than sitting as a fixed lump sum. For a contractor whose invoicing volume moves with the size and stage of the jobs it's running, that shape matters more than the headline advance rate.

What advance rate should you actually expect?

Be sceptical of any single percentage you see quoted, because the same lender's own pages don't agree with each other. A construction labour-hire blog page states advances of up to 85% of invoice value. A separate debtor finance solutions page states "within 24 hours we'll pay out up to 95% of the value of approved invoices, less our fees", with the remaining 5% released once the invoice is paid in full. The dedicated Invoice Finance product page instead states the advance rate as up to 80% of eligible invoice value. And a Trade Finance FAQ page, describing the same underlying tool in a different context, also lands on up to 80%. Four mentions across one lender's own site, three different headline figures. Treat whatever percentage you're quoted as specific to the actual facility and invoice type you're applying for, confirmed in writing, rather than the number you happened to find first on a search.

On scale: facilities can be arranged up to NZD $150 million, growing with a business's sales ledger rather than sitting as a fixed ceiling — relevant if your invoice volume is climbing as your job book grows.

Frequently Asked Questions

Does the retention trust mean I'll definitely get my retention money back? It protects the money from being lost or misused if it's held correctly — deposited into a dedicated account used solely for that purpose, with real penalties (up to $200,000 for the company, up to $50,000 per director) for failing to comply. What it doesn't do is bring the release date forward; you still wait for whatever trigger your contract sets.

Can I use standard invoice finance to fund a progress claim? Not always cleanly. Standard invoice finance is built around invoices for fully completed work, and one lender's own eligibility criteria explicitly flags that businesses invoicing in stages may not qualify for its general product — which is what a progress claim is. Ask specifically about a dedicated progress claims facility instead.

What advance rate should I actually expect on a construction invoice? Don't anchor on one number — the same lender publishes figures ranging from 80% to 95% depending on which page and which product you're looking at. Get the actual rate for your specific facility and invoice type confirmed in writing before you rely on it.

Is the retention trust protection automatic, or do I have to ask for it? It's automatic. The trust applies the moment the contract allows the withholding, regardless of whether the head contractor has actually withheld, calculated or scheduled the amount — you don't need to elect into it or file anything to trigger the protection.

Does this regime apply to every retained dollar, no matter how small? There's a minimum threshold below which very small retained amounts fall outside the regime, set in regulations rather than the Act itself — check the current figure before assuming every dollar withheld on a small job is automatically covered.

Deplexifi arranges construction and trade finance across New Zealand, Australia and the UK, and can tell you which facility actually fits a progress-claim ledger before you apply anywhere.

Assuming the retention money trust fixes cash flow. It protects the money from being lost if the head contractor goes under — it does nothing to bring the release date forward, or to fund the wage bill while progress claims sit unpaid.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.