I’ve spent over 15 years in the construction industry, and I’ve been on both sides of the table when it comes to getting paid. I understand what it’s like to work yourself into the ground and not get invoices processed at the end of the month because the client disappears and turns off their phone. It’s an awful feeling.
I also know what it’s like to have subcontractors submit invoices when they’ve not even had a soul on site all week. Even worse, I also know what it’s like to tell good honest tradesmen that there’s no payday this month because the client has gone bust.
These were some of the worst conversations I’ve had to have in my career, and I’ve seen and navigated the repercussions that non-payment can leave. However, there is one thing that I think we all can agree on – we would like to see these situations avoided, and today, that’s what we’ll explore.
There are plenty of articles out there talking about increasing sales and how to charge higher margins, but what about making sure you get paid in full as a strategy to make your subcontracting business more profitable?
Getting paid in full, and on time, isn’t just about luck – it’s about knowing how to play the game. And trust me, it is a game. But if you know the rules, you can win. Play well, and it’s a game with no losers. Let’s get into it.
This Article Covers:
- Know the Contract Inside Out
- Invoice Like a Pro
- Stay on Top of Payment Applications
- Chase It Early and Often
- Use the ‘Pay When Paid’ to your Advantage
- Retention Money – Don’t Let Them Keep It Forever
- Save Costs to Keep More Money
- Worst Case? Get Legal.
- Final Thoughts
Know the Contract Inside Out
Before you so much as pick up a hammer, do me a favor and read the contract. And I don’t mean a quick skim, like the way you read the T&C’s on the latest app you’ve downloaded, I mean read it read it.
The devil is in the details – payment terms, retention clauses, and deadlines. If the contract says “payment in 60 days,” don’t act surprised if you don’t get paid the same month you submit your invoice.
If there’s something you don’t like, then say so. Everything is negotiable. Just keep in mind that the bigger the contract, the higher the expectation will be to have longer payment terms and higher penalties. If you want to play in the big leagues, you need to be prepared to play by the rules.
I once worked with a subcontractor who was convinced he’d be paid weekly. He based this assumption on the fact that “that’s what happened on my last job.” When payday rolled around and nothing hit his account, he called up furious. Turns out, the contract he had signed clearly stated that payments were on a monthly valuation basis.
He came in screaming and shouting, only to meet a quantity surveyor more than happy to pull out the contract with the subcontractor’s signature on it. Turns out the subcontractor had no hesitation to sign away without thinking in order to land the job, but was less enthusiastic when it came to delivering.
You see, construction is all about cash flow – quite literally. Money doesn’t accumulate in a bank account to be paid out when needed, it flows from bank, to owner, to client, to contractor, to subcontractor.
If you’re chasing a contractor for payment, it’s most likely because they’ve not yet been paid either. That’s the way the whole system is set up unfortunately. Cash is expensive, and it needs to keep flowing in order to make construction projects viable. The trick is not to push against the tide, it’s to surf the wave.
The moral of the story – what’s written in the contract is what matters. If you don’t like the terms, negotiate them before signing. If the contractor won’t budge, ask yourself if you can afford to wait that long for payment. If the answer is no, walk away.
Invoice Like a Pro
If I had a dollar for every time I’ve had to speak with a disgruntled subcontractor about an unpaid invoice, only to find out that the invoice was incorrect, missing details, or on some occasions, not even submitted.
On the other hand, I also know the pleasures of working with subcontractors who are organized, submit their paperwork on time, and as a result, always get their payments cleared on time. Isn’t this the group you’d rather be in?
We’ve all done it – you spend all week focusing on delivering the work, managing tradespeople, dealing with clients, ordering materials, and then when it comes to submitting an invoice, you have to rush it through from the front of your van at the end of the month.
For a contractor, a sloppy invoice is one of the most frustrating things to deal with and doesn’t benefit either party. If you want to get paid on time without delays you need to make sure you have the fundamentals nailed:
- Details: Include the job name, contract reference, and breakdown of work done. Making the life of the general contractor easier, will in turn make your life easier.
- Ask: Find out in advance if the general contractor has a preferred format for invoices. If not, ask what information needs to be on there (tax codes, separations of labor and material, etc.) Get it in writing so that if you’re later questioned on it, you can prove you checked these details ahead of time.
- Keep it simple: Use a simple, easy-to-read format. I know in today’s world we love to stamp our branding on everything, which is great for business, however, don’t overdo it. A lot of contractors now use software to read and extract billing information from invoices automatically, and if you have three pages of images and graphics, it may complicate things. Keep it simple.
- Check it over: Make sure it’s error-free – one wrong digit or a missing reference number can turn a simple task into a complex one. Also, if you’re sending out paperwork with errors, what does that tell the client about your work?
- Evidence: If you agreed on staged payments, attach progress photos. Give them zero reason to delay. Again, it’s about making life easy for everyone involved. The easier you make it for your client, the less room there is for things to go wrong.
- And for the love of rebar: Send the invoice to the right person! Nothing slows down payments like an invoice sitting in the inbox of someone who left the company six months ago. I once worked with a subcontractor who was complaining his invoices were not paid. It turned out he’d been emailing them to his brother-in-law, who had the same first name.
Furthermore, in today’s world we are spoiled with a magnitude of digital apps to help with invoicing, time tracking, and all elements of the financial life cycle. Use them – your bank account will thank you for it.
Stay on Top of Payment Applications
If you’re working under a valuation-based payment structure, you need to be proactive. The general contractor isn’t going to chase you for your paperwork. If there’s a deadline for payment applications, you have no one to blame but yourself if you miss it. Late submissions can often mean waiting another month for processing.
And if there’s a site visit required for approval, make sure your work is ready and looking sharp. Don’t give them any excuse to have to “review the work further”. Construction contracting can be ruthless, so give no reasons to make it more difficult than it has to be. On inspection day make sure everything is swept up, looking smart, and ready for valuation.
I once had a subcontractor call me in a panic because he hadn’t been paid. I asked if he had submitted his payment application on time. His response? “I didn’t know I had to”. Turns out, he had no clue that his contract required a formal valuation submission by the 20th of the month.
By the time he figured it out, it was the 25th. Technically, he should’ve had to wait another full month before his invoice even got looked at, however, thankfully the quantity surveyor was in a good mood and agreed to make an exception, but the subcontractor got off lightly.
Chase it Early and Often
In construction, the squeaky wheel gets the grease. Don’t wait until your due date has come and gone – start nudging the client early. A polite follow-up a week before the due date keeps it on their radar and also lets them know that you’re paying attention.
Don’t worry about being too forward. In the construction industry, this is completely normal, and in many cases respected, as the approach demonstrates fiscal responsibility.
If a payment’s overdue, escalate. Start with a professional reminder. If that gets ignored, pick up the phone. If that fails, show up on-site – nothing lights a fire under accounts payable like a subcontractor standing in the reception with a coffee and a question about their invoice.
I had a guy I worked with who swore by what he called the “Friday Afternoon Special.” Every Friday, if an invoice was overdue, he’d drive to the main contractor’s office, sit in reception, and wait. He’d chat with the receptionist, make small talk with whoever passed by, and just generally make his presence known.
More often than not, someone from accounts would suddenly find time to process his payment.
It might not always be practical, and shouldn’t be necessary, but the point stands – don’t be forgotten.
That said, keep it clean. I’ve heard horror stories of subcontractors going too far and threatening to tear out their work if they’re not paid. It’s a lose-lose solution as all it will do is get you kicked-off the site, and with no pay at all.
Use the ‘Pay When Paid’ to Your Advantage
‘Pay when paid’ is a clause that allows a general contractor to delay paying subcontractors until they themselves have been paid by the client. Essentially, it shifts the risk of non-payment down the chain, leaving subcontractors waiting indefinitely if the client delays or refuses payment.
While some regions have laws restricting or voiding these clauses, they are still used in many contracts to justify late payments.
If your contract includes a ‘pay when paid’ clause, know your rights. In many places, these clauses don’t override prompt payment laws. The moment you suspect funny business, start looking into legal protections in your area.
If the general contractor has been paid and is still holding out on you, they’re the problem – not the client.
Retention Money – Don’t Let Them Keep It Forever
Retention clauses are designed to bring a client or general contractor comfort that subcontractors will actually deliver the work, and will also repair any defects after the project has been handed over. In reality, however, as many will know, they can be used as leverage to squeeze subcontractors out of their full price.
The answer is to be fully aware of what you’re due, by when, and make sure that every invoice or valuation submitted shows and accounts for the retention balance that you expect to realize at the end of the project.
Having this written record can be used as evidence in a situation where a general contractor is refusing to pay out. It shows that they were made aware of the amount throughout the works, and therefore has been signed off as part of monthly valuations.
Furthermore, ensuring that any snagging works or defects are dealt with promptly and up to standard is another way to ensure retention is paid out in full.
The same goes both ways, retentions are a way general contractors can ensure the works will be treated with respect. I have been on projects where retentions weren’t enforced, and subcontractors would simply disappear towards the end of the project, as they’d rather take a new job than spend time fixing complex defects just for 2.5%.
Learning to respect why retentions are in place will lead subcontractors on the right path as to how to make sure they receive them in full, without delay.
Mark your calendar for the retention release date and start chasing it before it’s due. If they try to delay, ask for written reasons. Keep records of all your work completion certificates and defect-free confirmations. The longer they hold your money, the less likely you are to see it.
Save Costs to Keep More Money
Getting paid on time is one thing – keeping more of it is another. Saving costs is arguably the easiest way to increase profits. Cutting costs by even just 1% can boost profits by a much larger percentage.
Let’s say you’re a roofing business, and in one year you deliver $100,000 of work. Let’s also say you made $10,000 in profit, which equals a 10% profit margin, meaning you spent $90,000 on labor, material, and other costs. If you managed to save just $10,000 of those costs (ie. an 11% reduction in spending), your profit margin is now $20,000. That’s doubled your net profit!
Let’s say that again – by saving 11% in costs, your net profit has increased by 100%!
To see the same increase in profit by growing the business and winning more contracts, you would have to win and deliver twice the work and increase revenue to $200,000 to make a $20,000 profit. This shows the power of saving costs, and why it can be a faster and more efficient way of increasing profit than growing sales and revenue.
One of the easiest places to reduce costs is to be more efficient with the time your team works. A simple way to do this is by using construction time attendance software to monitor your crew’s hours. Accurate tracking prevents unnecessary overtime and ensures you’re only paying for actual work done.
Plus, these tools can generate billable reports that you can send to clients as proof of work completed – making disputes over labor costs far less likely.
In my opinion, looking at where you can save costs is the quickest way a subcontractor can grow their profit margin, and digital tools make it easier to do than ever.
Worst Case? Get Legal
If you’ve followed all the steps and still aren’t getting paid, it’s time to escalate the matter legally. Legal disputes in construction are typically handled by contract lawyers, mediators, or dispute resolution specialists. These professionals can draft legal notices, negotiate settlements, or represent you in court if necessary.
Start by consulting a construction attorney or solicitor with experience in payment disputes. You may also reach out to your local contractor licensing board or trade association, which can provide guidance on dispute resolution. Many construction contracts include mechanisms like adjudication, arbitration, or mediation, which can help secure payment without full-scale litigation.
The timeline depends on the approach. A formal demand letter can yield results in a few weeks, while small claims court cases may take a few months. More complex legal actions, such as liens or adjudication, can take longer. Litigation is the slowest route, often stretching out for months or even years, so use it as a last resort.
A strong paper trail is critical. Keep signed contracts, invoices, and payment applications ready to deploy. Time tracking reports can serve as key evidence, proving the hours worked, so using time tracking software will always prove helpful if you need to prove your case in a legal dispute.
Additionally, save all emails, payment reminders, work completion certificates, and signed work orders to strengthen your case.
Legal action is a last resort, but it’s sometimes necessary. Many contractors will settle quickly when they see you have the paperwork to back your claims. Act swiftly, stay persistent, and ensure your contracts protect your right to payment.
Final Thoughts
Getting paid in construction isn’t just about doing the work – it’s about playing the game. Your hard work and time is worth being paid for, and unfortunately, sometimes you have to fight for it.
Run your business like a pro, stay organized, and don’t let anyone take you for a ride. Because in reality, a subcontractor who stays on top of payments is a subcontractor who stays in business.
