Case Study: Working Capital Stress Diagnostic for a Government Contractor
Stabilising a government contractor facing an immediate cash shortfall despite Rs 4 crore of verified receivables
Executive Mandate Summary
Key Transaction & Governance Challenges
- •The contractor had Rs 4 crore of receivables from government departments, but only Rs 6 lakh of immediately available cash against Rs 42 lakh of payments due within 30 days.
- •Government claims were at different stages of measurement, verification, approval and payment processing, making the Rs 4 crore receivable balance less immediately usable than the headline figure suggested.
- •Three claims worth Rs 48 lakh were delayed because required measurement sheets, quality certificates and site photographs had not been submitted.
- •Two claims worth Rs 62 lakh were held following measurement queries that had remained unanswered for approximately six weeks.
Northrop Execution Architecture & Methodology
Executive Mandate Overview
The contractor had Rs 4 crore of receivables from government departments.
The business was profitable and had operated successfully for seven years.
Yet the bank had called a review and the contractor was 11 days away from a potential cheque return.
The issue was not that customers were refusing to pay.
The issue was timing.
Government contract payments often depend on completion milestones, measurement, verification, documentation and departmental processing. Meanwhile, contractors must continue paying suppliers, labour and equipment costs.
Northrop conducted an urgent 14-day working capital diagnostic to stabilise the immediate cash position, accelerate eligible receivables and restructure the working capital facility around the actual operating cycle.
The 30-Day Cash Gap
The immediate cash position was reconstructed.
Cash Available
Rs 6 lakh
Payments Due Within 30 Days
Rs 42 lakh
This created an immediate funding gap of approximately Rs 36 lakh.
The contractor had approximately Rs 4 crore of outstanding receivables.
However, the full Rs 4 crore could not be treated as immediately collectible cash.
Approximately Rs 1.2 crore had completed verification and was already within the government's payment-processing pipeline, with estimated receipt in approximately 25 to 40 days.
The analysis therefore shifted from:
"How much money is owed?"
to:
"How much money can realistically arrive, and when?"
Mapping the Receivable Pipeline
Each receivable was analysed individually.
The review examined:
- Milestone completion
- Measurement status
- Bill submission
- Verification status
- Documentation requirements
- Departmental queries
- Approval status
- Estimated payment timing
The Rs 4 crore balance consisted of 11 individual milestone claims at different stages of the payment process.
This distinction was critical.
A receivable that has completed verification and entered payment processing has a different cash-conversion profile from a claim awaiting documentation or measurement clarification.
Unblocking Stuck Claims
Three claims worth Rs 48 lakh were delayed because required documentation had not been submitted.
The missing documentation included:
- Measurement sheets
- Quality certificates
- Site photographs
The documents were prepared and submitted within four days.
Two additional claims worth Rs 62 lakh were being held because departmental officers had raised measurement queries.
The contractor had not responded to those queries for approximately six weeks.
Northrop prepared the responses and the contractor submitted them within three days.
Together, these actions moved approximately Rs 1.1 crore from "stuck" to "processing" within 10 days.
The intervention demonstrated that the immediate cash problem was partly a receivable-management problem rather than solely a financing problem.
Verifiable Institutional Outcomes & Value Realized
- Claims worth Rs 1.1 crore were moved from "stuck" to "processing" within 10 days through documentation completion and response to outstanding queries.
- Accelerated claims resulted in Rs 68 lakh of receipts within the following 30 days.
- The contractor avoided the anticipated cheque returns during the immediate cash-stress period.
- The bank approved an enhanced working capital facility of Rs 2.2 crore within 60 days after reviewing the documented receivable pipeline and revised cash-flow model.
Ashish Chaudhary
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