Glossary · also called Mobilization advance, Mobilisation fund, Advance payment
What is a Mobilisation Advance in Construction?
Mobilisation advance: A mobilisation advance is an advance payment a client makes to a contractor at the start of a construction contract to help with site set-up, plant and initial material. It is usually a percentage of the contract value, often secured by a bank guarantee, and is recovered in instalments by deduction from later RA bills.
Definition
Starting a project costs money before any work can be billed: site offices, labour camps, plant, temporary works and the first materials. A mobilisation advance bridges that gap. It is not extra payment — it is the client’s money paid early, and it comes back to the client by deduction from the contractor’s bills.
The contract sets the terms: the percentage, whether interest is charged, the security required (commonly a bank guarantee), and when and how recovery happens. Some contracts also provide separate advances against plant or secured materials.
How it works
An example, with illustrative terms only: a ₹5 crore contract with a 10% mobilisation advance (₹50 lakh), recovered at 15% of the gross value of each RA bill until fully recovered.
| Bill | Gross value (₹) | Recovery at 15% (₹) | Balance outstanding (₹) |
|---|---|---|---|
| RA 1 | 60,00,000 | 9,00,000 | 41,00,000 |
| RA 2 | 80,00,000 | 12,00,000 | 29,00,000 |
| RA 3 | 1,00,00,000 | 15,00,000 | 14,00,000 |
| RA 4 | 1,00,00,000 | 14,00,000 | 0 |
The recovery is one of several deductions on each bill, alongside retention money and, where applicable, liquidated damages.
Common mistakes
- Treating the advance as income. It is a liability until recovered.
- Losing track of the balance, so recovery continues after the advance is cleared or stops before it is.
- Letting the bank guarantee lapse while a balance is still outstanding, or not reducing it as recovery progresses where the contract allows.
- Ignoring the cash-flow dip. Recovery reduces net receipts in the middle of the project, when costs are often highest.
- Spending the advance on another project. It was given to mobilise this one, and its recovery will come out of this project’s bills.
How GST applies to advances depends on whether they relate to supplies; check with your tax advisor.
In Zaptiz
Zaptiz Construction records advance terms at contract award and applies advance recovery as a deduction on RA bills until it is fully recovered.