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Contractor Payment Schedules: What's the Best for My Project

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Contractor Payment Schedules: What's the Best for My Project

After finding the right contractor for the project, you want to make sure they are paid on time. However, there are several options for these payments. Most will accept a general deposit, and then you pay after the job is finished. Some will require a deposit with several payments throughout the course of the project. Which one is right for you? Here is a look at contractor payment schedules. 

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What Is the Standard Construction Payment Schedule?

make sure to keep track of your contractor payments

The payment schedule establishes a timeline throughout the project to pay your contractors. Many contractors don't receive a lump-sum payment for the work. Instead, these contractors break the costs down into progress payments, meaning the payments are made at regular intervals of a set schedule. Contractors will create their own schedules so they can keep track of payments. These schedules can help clients know when and how much they need to pay to the contractor

Those payments ensure that the contractor has enough money to pay subcontractors and pay for equipment and supplies. A construction payment schedule can help track when payments are due to vendors. A standard construction payment schedule will include:

  • The name of the contractor or vendor
  • Description of the material and work
  • Due date and amount of the payment

These schedules not only help your contractor get paid, but you can keep track of the progress of the job

If you debate whether you should pay the contractor upfront or pay before or after the job, these schedules can answer you. 

Related: How Much Does It Cost To Hire An Electrician: Rates & Costs

Types of Construction Payment Schedules

You need to have a construction payment schedule to keep the project on time. Without payments and cash changing hands, there would be no projects. The payment schedule is the most crucial element of the job. 

Whether you are the client or contractor, you need to have a concrete payment schedule as part of the contract process. These schedules can keep the project from heading off the tracks when you plan out the payments. Along with that, the construction payment schedule will help keep the project on time, avoid vendor disputes, and stay on budget. 

Contracts can influence the payment schedule. For example, those time and material contracts will be more flexible with payments than other contracts. There are some standard payment schedule formats, including deposit + final payment and progress payment schedules. 

One of the most common payment schedules is known as a deposit + final payment. A deposit is often followed by the final payment for those smaller projects. The deposit will cover the permits, materials, and sometimes, labor. With this, the contractor will not front all of the costs initially. Plus, the client can ensure the job was completed to their satisfaction before making a final payment. 

Related: How Much Does a Home Inspection Cost? 

What Is the Progress Payment Schedule?

paying for a construction project

If you have a medium to large construction project, you may make progress payments. Under this schedule, you will make the payments at specific project points. There are three types of progress payment: time-based, milestone, and completion-based.

With time-based payment, the schedule is divided into equal payment amounts. The contract will establish the amount and due dates of the payments. While these payments are usually firmly established, there can be changes if any delays occur in the project. 

Milestone-based payments are another option. In these contracts, the payments are made when the contractors reach a specific project's stage. For example, when the contractor clears the property, the client will pay. These payment schedules are great when the massive construction project consists of smaller, separate projects. 

Finally, there is a completion-based payment. These payments are regular at regular intervals based on the project. For example, the contractor could require a 10% payment at each step of the project. These completion schedules can be a challenge, and they only work well on projects with itemized budgets or schedules of values. 

What Are Typical Payment Terms for Contractors?

As you can tell, there are several types of payment schedules for construction projects. You need to work with the contractors before the project starts to find the best way that will be beneficial for both sides. Most contractors will use time and materials. But keep in mind those bigger jobs will require a progress payment schedule. 

If you are uncertain about these schedules, it can lead to a missed payment. Remember that the contractor has a right to get paid. If you fail to make good on a payment, the unpaid individual can file a mechanic's lien against the property. With these liens, the contractor will ensure that they get a payment for their work. You can avoid all of these legal hassles by ensuring that you fully understand the payment schedule for your job. 

How Do I Keep a Contractor on a Schedule?

People Holding a Piece of a Sheet of Paper while Standing by the White Wal

By establishing set payment schedules, you can keep the contractor on track to finish the job. You may want to think about payment with a progress schedule. Every completed step can help your contractor make sure that the project gets finished. Payments motivate the construction team to get everything done by a specific time. If the work is not completed, you don't make a payment until it is finished. As a result, you can ensure that the contractor will work hard to keep everyone else on task. 

Related: Is It Cheaper To Build Or Buy A House? 

There are so many different construction payment schedules. Time and materials are great for smaller jobs, while progress payments are ideal options for larger projects. Choose the one that will work best for your project

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FAQ Answer
What happens if a contractor does not adhere to the agreed payment schedule? If a contractor does not follow the agreed payment schedule, it may lead to project delays, disputes, and potential legal issues. Clients should address any discrepancies immediately to ensure the project remains on track and within budget.
How can a client negotiate payment terms with a contractor? Clients can negotiate payment terms by discussing their budget constraints and project requirements upfront. Effective negotiation involves clarity about payment amounts, timelines, and conditions under which payments will be released. This helps in creating a payment schedule that aligns with both parties' expectations.
Are there any benefits to paying contractors in smaller, more frequent installments? Paying contractors in smaller, more frequent installments can help maintain a steady cash flow for the contractor, ensuring that resources are available throughout the project. It also allows the client to monitor progress and quality of work before releasing further payments, potentially reducing the risk of non-compliance with project specifications.
What should be included in a construction payment agreement to avoid future disputes? A construction payment agreement should clearly state the payment schedule, conditions for each payment, detailed descriptions of the work and materials involved, and penalties for late payments or non-compliance. Including dispute resolution procedures can also be beneficial.
How can a client protect themselves from potential mechanic's liens? To protect against mechanic's liens, clients should ensure timely and complete payment as per the agreed schedule. They can also request lien waivers from contractors and subcontractors with each payment, confirming there are no outstanding claims for payment when the project concludes.

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  • Ryan Crownholm