On most jobs, a contractor pays first and gets paid later. Crews are paid every week and suppliers bill on 30-day terms, while rentals, permits and bonds are paid up front. The money comes back through a pay application. It moves from you to the general contractor to the owner, sometimes past the owner’s lender and an inspector, and the payment arrives weeks after the work is done, minus retainage.
Profitable contractors carry that gap as a normal part of the business. The ones who carry it best plan it the way they plan a schedule, job by job and week by week.
Where the gap comes from
- Billing in arrears. You bill monthly for work already done, and payment follows weeks later.
- The approval chain. Each person who reviews a pay application adds days, and one missing document can hold up the whole draw.
- Retainage. Commonly 5% to 10% of each payment is held back until the job, or a milestone, is complete.
- Pay-when-paid terms. A subcontractor’s payment can depend on the general contractor being paid first.
- Change orders. Extra work done before a change order is signed waits for that signature before it can be billed.
- Mobilization. Equipment, materials, permits and bonds are paid for before the first bill goes out.
Retainage is the easiest piece to underestimate. On a job that holds back 10%, the last tenth of the contract can arrive months after your crew has moved to the next site.
Map the gap before you bid
For each job, lay out week by week when money goes out and when it comes in. Payroll, materials, subcontractors and rentals go on one side. Pay application dates, the time each one takes to approve and the date retainage is released go on the other. The deepest point in that running total is what the job needs you to carry.
For example, a framing contractor starts a job in March. Payroll runs every Friday from the first week, the lumber bill is due 30 days after delivery, and the first pay application goes in at the end of March. If the general contractor pays 30 days after approval, the first check arrives in early May, after two months of payroll.
Add up the gaps across all your open jobs. Jobs overlap, and the total in the worst week is the number to plan around.
Bill so the money arrives sooner
- Build a schedule of values that reflects when your costs fall, including mobilization where the contract allows it.
- Ask for a deposit or a mobilization payment when you negotiate the contract.
- Submit every pay application on time and complete, with lien waivers and backup attached.
- Bill for materials stored on site or in your yard, if the contract allows it.
- Get change orders signed before you do the work, and bill them with the next pay application.
- Track retainage by job, and request its release as soon as each milestone allows.
- Know who approves your pay applications, and follow up the day they’re due.
Match your payables to your draws
- Open supplier accounts with 30-day terms or longer, and pay on time to keep them.
- Match your subcontract payment terms to the terms in your own contract.
- Rent equipment for short jobs, and finance the machines you use every week.
- Order materials close to when the job needs them, unless a price is worth locking in early.
Price the gap into the bid
Carrying a job costs money, whether it comes from your own cash or from financing. When a contract pays slowly, holds retainage until closeout or runs through a long approval chain, that carrying cost belongs in the estimate next to labor and materials. Two bids with the same margin on paper can earn different amounts once the cost of carrying each job is counted.
Before you sign, read the payment terms as closely as the scope. Check when pay applications are due, how long approval takes, how much retainage is held and what releases it, and whether your payment depends on someone else being paid first.
Financing that fits the gap
A business line of credit suits payroll and materials between draws. You draw when the job needs it and repay when the draw lands, so you pay only for the weeks you used it.
Invoice financing can advance money against pay applications and invoices that are approved but not yet paid. Retainage and pay-when-paid terms can limit what qualifies, so ask how a lender treats them; some specialize in construction. There’s more in invoice factoring and financing, explained.
Equipment financing spreads the cost of a machine over its working life, with the machine as security.
Working capital fits a known gap, such as retainage held until closeout or a stretch between two jobs.
A term loan can carry the start-up costs of a contract larger than you’ve taken on before, or the purchase of a yard. If you’re weighing what to pledge, see secured vs. unsecured business loans.
What a lender looks at for a contractor
Deposits in construction are lumpy, and lenders that work with contractors expect it. Several months of statements show the pattern. Beyond that, most look at:
- Time in business and your credit
- Contracts in hand, with their billing schedules
- Who owes you money, and how long it has been owed
- Existing financing, and any liens on your equipment
- Your bonding, if your work requires it
Bring a short list of your open jobs with the contract value, what you’ve billed to date, the retainage held and when you expect each payment. It explains your statements before anyone asks. There’s more in what lenders weigh.
Carry the next job with room to spare
See financing for construction for the options at a glance, or start with a business line of credit for payroll between draws. Apply from the page that fits. Applying takes a few minutes and won’t affect your credit score. We’ll review your application and match you with the options that fit.
