A government contract can be profitable on paper and poisonous in practice. The supplier ships, the delivery note gets signed, the invoice sits in a queue, and the payroll clock keeps moving. By the time usable cash lands in the bank, the business may already have borrowed against the sale, stretched its overdraft, and postponed every other option it had.
National Treasury’s numbers at the end of the third quarter of the 2025/26 financial year show the scale of the problem. R15.5 billion in government invoices older than thirty days was still unpaid, spread across 90,856 invoices. Provincial departments accounted for 98% of both the overdue count and the value. This is a lending problem disguised as procurement, not a paperwork nuisance.
The contract looks profitable before the cash arrives
Take a contractor that wins a large public-sector order to supply equipment and manage installation. The job carries a healthy gross margin, say 22%, so the owner starts thinking in terms of revenue, not cash. Gross margin only tells you what is left after direct job costs. It says nothing about when the money comes in, and the timing is the whole game.
To execute the contract, the company must buy stock, pay wages, cover transport, maybe rent specialised equipment, and keep the office running while the client deliberates in slow motion. If the deal is bigger than its usual work, the business has to scale before it gets paid. Revenue rises, and so does the need for working capital, which is the cash a company needs to bridge the gap between paying costs and collecting money.
A profitable invoice does not finance itself. If the client takes 60 days to pay, the supplier is effectively lending to the state. If payment slips to 90 or 120 days, the supplier is financing the job for three or four months. A business can grow itself into a cash squeeze because every new order adds more upfront spending before adding usable cash.
The money leaves before the sale is finished
The sale is not complete when the delivery note is signed. It is complete when money that can be spent without argument clears the bank. Between those points, the contractor has a paper asset and a real liability.
A simple version: The company accepts a R10 million order. Direct costs for materials, labour, logistics, and site overhead come to R7.8 million. On paper, the gross profit is R2.2 million. In reality, the company may need to spend most of that R7.8 million within the first 30 days, while payment sits 60, 90, or 120 days away.
If the supplier funds the gap through an overdraft at 14% a year, the interest bill depends on how long cash is trapped. On a rough basis, carrying R7.8 million for 60 days costs about R179,000 in interest. At 90 days, that climbs to about R269,000. At 120 days, it is roughly R358,000. Those are not catastrophe numbers in isolation, but they sit inside a business with payroll, taxes, equipment maintenance, and other customers to serve. Add a few such jobs at once and the borrowing climbs fast.
Now fold in reality. Government work rarely arrives as one neat lump sum. It arrives in stages, with partial deliveries, queries, resubmissions, and delays that turn one invoice into several smaller waits. The contractor finances the original job and the administrative drag around the job too.
What the Treasury figures say about the risk
The unpaid invoice pile at the end of the third quarter of 2025/26 shows where the strain is concentrated. Provincial departments accounted for 98% of the overdue invoices and 98% of their value. This shows where suppliers are getting squeezed, and it is not subtle. The supplier base most exposed here includes construction firms, IT providers, healthcare suppliers, and consultants, the kinds of businesses that often have to spend first and argue later.
The Public Finance Management Act requires payment within 30 days after an invoice is received, but the Treasury figures show how often that standard is missed. The law says one thing; the ledger says another. For the contractor, the practical lesson is brutally simple, even if the procurement language sounds civilized: if the client pays late, the supplier becomes the financier.
A profitable contract can still bankrupt a growing company because the margin can be fine while the balance sheet suffocates. Banks lend against collateral and comfort. Suppliers under pressure often have neither, only receivables from a client that already owes half the market R15.5 billion and is in no hurry to clear the queue.
What was knowable before the contract was signed
None of this is a postmortem surprise. A disciplined contractor could have seen the risk before signing. The questions are mechanical, not mystical. How much cash is tied up per month of production? How much debt headroom exists? What is the longest realistic collection period, not the one written in the tender pack? What happens if two invoices age past 90 days at the same time?
A proper bid should price the financing cost of delay, not just labour and materials. This means modelling 60-day, 90-day, and 120-day payment scenarios and treating the extra interest as a job cost. If the contract still works at 120 days, it is probably real business. If it only works when the client pays on time, it is a fragile bet dressed up as revenue.
Growth makes the problem worse before it makes it better. A bigger public-sector order sounds like a breakthrough, but it also expands the cash that has to be advanced up front. The contractor grows its top line and may be shrinking its freedom at the same time.
