Setting Up Payment Terms That Actually Get You Paid on Time

Cash flow is oxygen. Without it, your contracting business dies, regardless of how booked out your schedule is.

Most payment delays are the fault of the contractor, not the client. If your contract simply says "Half now, half later," you are building a house of cards. You are essentially taking on the financial risk of the entire project and hoping the client remains solvent and happy until the final walkthrough.

To protect your business, you must implement strict, milestone-based payment terms.

Never Finance the Job Yourself

You are a builder, not a bank. The golden rule of contracting is that you should never be fundamentally upside down on a project financially.

Your initial deposit must cover the massive upfront costs of starting the work. A standard industry practice is requiring 30% to 50% upfront. This deposit covers the specialized material orders, permits, and the initial mobilization of your crew. If a client balks at a 30% deposit, that is a massive red flag. Walk away.

Structure Progress Payments

For any project lasting longer than a week, you must implement progress billing. "Half now, half later" only works if the job takes two days.

Tie payments to highly visible, undeniable milestones.

• 30% Deposit upon signing
• 30% Upon completion of rough-in (inspections passed)
• 30% Upon installation of finishes
• 10% Upon final punch list completion

By tying payments to physical realities on the job site, you eliminate ambiguity. The client can see the drywall is hung. Therefore, the payment is due.

Keep the Final Payment Small

The final payment should never be the largest chunk of the contract. If your final payment is 50% of the job, the client holds all the leverage. They can delay payment over trivial, microscopic details on the punch list, holding thousands of dollars captive over a $20 piece of missing trim.

Your final payment should only be 10% to 15% of the total cost. By the time the final punch list is generated, you should have already collected enough money to cover 100% of your materials, labor, and overhead. The final 10% is your net profit. If the client drags their feet, your business survives.

Include Late Fee Clauses

Contracts are worthless without consequences. Your payment terms must explicitly state what happens when a client misses a milestone payment.

Add a late payment clause to your contracts. "Payments not received within 5 days of the due date will incur a 2% late fee per month." While you might rarely enforce this on good clients, having it in writing gives you leverage when dealing with difficult ones.

More importantly, stipulate that your crew immediately stops all work if a progress payment is missed. Never continue building a house for someone who has stopped paying for it.

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