---
title: "Mobilization advance and contractor cash flow"
subject: "Construction Management"
chapter: 6
key: "semester_8/construction_management:mobilization-advance-cash-flow"
source: https://www.bctengineer.com/q/semester_8/construction_management/mobilization-advance-cash-flow
site: BCT Engineering
---

# Mobilization advance and contractor cash flow

Construction Management · Chapter 6: Construction Process

- Asked in: 2078 Chaitra, 2 marks
- Video: [Mobilization Advance - Recovery/Pros/Cons/Effect on Cash flow/Necessity](https://www.youtube.com/watch?v=W4gESKyu5sk) — Engineering Motive
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/mobilization-advance-cash-flow
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-6

## Question

How does mobilization advance affect the cash flow of a contractor?

## Short answer

Mobilization advance, usually about 10% of contract price and recovered from running bills, provides early cash when spending is highest, reducing the peak deficit and the need for overdraft. It lowers interest cost and allows bulk buying and timely wage payment. Later, recovery from each bill flattens the net payment curve, but the overall peak borrowing is reduced.

## Answer

**Mobilization advance** is an advance, usually interest-free, paid by the client to the contractor at the start of the contract against a bank guarantee. It is normally about 10% of the contract price (up to the limit allowed by the contract and Nepal's Public Procurement Regulations). It is recovered gradually from the running bills.

**Effect on the contractor's cash flow:**
- It gives cash in the early stage, when spending on equipment, camp, materials and wages is highest and no bill has yet been paid. This reduces the cash flow deficit at the most critical stage.
- It lowers the need for a bank overdraft, and so reduces interest cost.
- It improves the contractor's ability to buy materials in bulk and pay workers on time.
- Later, the recovery (a deduction from every bill) reduces the cash received per bill, so the net payment curve is flatter in the later stage.
- The cost of the bank guarantee (and any interest, where the contract charges it) is small compared with the saving in financing cost.

In short, the advance raises the cash inflow curve in the early period and lowers the peak borrowing.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is the usual size and security of mobilization advance in Nepal?
   A. About 10-15% of contract price against a bank guarantee
   B. About 50% with no guarantee
   C. About 1% against cash
   D. About 30% as a gift
   Answer: A. It is about 10-15% of the contract price, paid against a bank guarantee and recovered from running bills. (Key point: Mobilization advance)

2. How does the advance help the contractor's cash flow?
   A. It increases the peak deficit
   B. It gives cash in the early stage and lowers peak borrowing
   C. It removes the need to pay workers
   D. It delays the start of work
   Answer: B. It supplies money when early expenses are highest and no bill is paid, reducing the deficit and overdraft interest. (Key point: Effect at critical stage)

3. What happens to the advance later in the contract?
   A. It is returned in cash at once
   B. It is recovered by deduction from every running bill
   C. It is forgiven
   D. It is added to retention
   Answer: B. Deductions from each bill reduce net payments in the later stage. (Key point: Recovery)

## Related in Construction Management

- [Contractor cash flow estimate and critical stage](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Acontractor-cash-flow-estimate) — Construction Management, chapter 6, asked 2×
- [Cash flow management: importance and preparation](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Acash-flow-importance-preparation) — Construction Management, chapter 6, asked 8×

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