Solar EPC receivables and working capital: why profitable projects still run out of cash
An EPC pays suppliers up front and gets paid in stages. The gap is your working capital, and a stalled approval can stretch it by months. A worked cash curve and the three numbers to watch.
- Profit and cash are different clocks. A project can be 15% profitable and still need you to fund 37% of its value.
- The final milestones (commissioning, retention) are where receivables age.
- A 3-month approval slip can keep a project cash-negative three months longer, in our illustrative curve.
- Track receivables by milestone and expected date, not only by invoice date.
- Retention and bank guarantees are receivables too. Put them in the same view.
Quick answer
Solar EPCs pay for panels and inverters early and collect in milestones, so even a profitable project can leave you cash-negative for months. The gap widens when the milestone that releases payment, usually commissioning or net metering, is stuck behind an approval. Track receivables by milestone and expected date, not by invoice, and watch three numbers: peak funding need per project, days waiting on approvals, and ageing of the final milestone.
Why is a profitable project still short of cash?
Because profit is booked at the end and cash moves along the way. You place equipment orders early, often with payment on order or dispatch. The customer pays in stages tied to events: advance, delivery, commissioning, retention. Between the first supplier payment and the last customer payment, you are the bank.
What does that look like in numbers?
An illustrative example with assumed numbers, in Rs lakh.
A C&I project is worth Rs 80 lakh. Customer milestones: 20% advance (16), 50% on material delivery (40), 20% on commissioning (16), 10% retention (8). Your costs: suppliers 46 paid in month 1, then installation and balance-of-system 22, paid 11 in month 2 and 11 in month 3. Total cost 68, so margin is 12 (15%).
Illustrative cumulative cash position for one project (Rs lakh, assumed numbers)
Source: Our illustrative arithmetic, not data from a real project. Receipts 16 at M0, 40 at M2, 16 at commissioning, 8 retention later; payments 46 at M1, 11 at M2, 11 at M3.
View data
| On schedule | Commissioning slips 3 months | |
|---|---|---|
| M0 | 16 L | 16 L |
| M1 | -30 L | -30 L |
| M2 | -1 L | -1 L |
| M3 | -12 L | -12 L |
| M4 | 4 L | -12 L |
| M5 | 4 L | -12 L |
| M6 | 4 L | -12 L |
| M7 | 4 L | 4 L |
| M8 | 4 L | 4 L |
Read the chart:
- Peak funding need is 30, in month 1. That is 37.5% of the contract value, funded by you, on a project that is 15% profitable.
- If commissioning happens on schedule, the project turns cash-positive in month 4.
- If commissioning slips three months, say behind an inspection or a net meter, the project stays 12 lakh negative until month 7.
- The 8 lakh retention arrives much later and is not on this chart. See retention and bank guarantees.
Now multiply by ten live projects. A three-month slip across several of them is how a profitable year ends in a bank-limit conversation.
Which three numbers should you track?
- Peak funding
- Per project
- Days waiting
- On approvals
- Age
- Of final milestone
Lowest point of the cash curve
Per project, per external step
Commissioning and retention dues
- Peak funding need, per project and in total. Tells you how many projects you can run at once on your cash and limits.
- Days waiting on approvals. The lead indicator. A project waiting on a DISCOM today is a late receipt next month. See approvals tracking.
- Age of the final milestone. Not total receivables ageing, which hides the pattern. The commissioning and retention dues are where cash goes to sleep.
Why track by milestone and not by invoice?
An invoice list tells you what you billed and when. It does not tell you what is due but unbillable because a certificate is missing, or what is billable but blocked on the customer’s approval. A milestone view per project shows, for each stage: contractual trigger, evidence needed, date reached, date billed, date collected, and the reason if it is late. That is the view a CEO and an accounts head can act on.
Where does this not apply?
Small residential jobs paid largely upfront have a thin cash gap, and government-scheme jobs have their own subsidy timing. If most of your revenue is quick residential work with the customer paying on commissioning, the cash curve is shorter and simpler. This page is for EPCs with C&I or larger projects and staged payments.
What to do this week
- For your three biggest live projects, draw the cash curve on paper: when each supplier is paid and when each milestone should arrive.
- Note the peak funding need. Check it against your cash and limits.
- List which milestones are waiting on something outside your control, and who owns the follow-up.
Part of the guide Running a solar EPC business on connected systems.
The cash curve is our illustrative arithmetic with assumed numbers: monthly cumulative = prior balance plus receipts minus payments (16; 16-46 = -30; -30+40-11 = -1; -1-11 = -12; -12+16 = 4). Margin 80 minus 68 equals 12, or 15%. Peak funding 30 divided by 80 is 37.5%. Milestone terms are an example, not a market norm. The framing of staged payment and working capital is our reading of how EPC contracts commonly work, not a measured statistic.
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