Episode Transcript
Progress Payments in Construction Can Be Hard to Ask For
So, How Should You Do It?
It can be hard to go to ask a construction customer for a progress payment. Part of the problem is that there are too many stories of construction customers being asked for money before the work is done and then the contractor doesn’t come back for an extended period.
So, you can’t blame the customer for being hesitant to pay. Or for honest contractors being nervous to ask.
This is why it’s important to have business tools and systems that communicate clearly and let all parties know what to expect.
When doing construction projects that take longer than a couple of weeks, you need to have a way to get paid throughout the project.
Big projects require large amounts of money for project related expenses. Unless you’re a millionaire … waiting until the job is complete to get paid is a sure way to go out of business.
An alternative approach is to be paid at predefined stages or when percentages of a project are complete, this is called “progress payments.”
In the construction industry, a progress payment is a partial payment often made after the completion of a predefined stage of work — for example, demolition, concrete, framing, roofing, or siding.
Progress payments replace single, lump-sum payments at the end of a project or a “half upfront, half at the end” arrangements.
Making payments connected to the completion of a specific stage of work can create some confusion. For instance, does completion of concrete include sidewalks and garage approaches that may not be able to be completed until other things are done? That’s why at Timber Creek Construction, we choose to make our payments based on periods of time rather than stages. We then determine how much work has been done within the predetermined period of time and invoice accordingly.
Progress payments done well, benefit all parties involved.
Clear communication starts before the construction does. It should start with a proposal that explains everything to the customer before they sign anything. This is a document that explains what will or will not be supplied by the contractor, the scope of work to be done, the proposed price for each specific element, a total project price, payment arrangements and project duration.
These last two things let the customer know what to expect in the payment process. After the proposal is signed there should be a contract that includes stipulations for nonpayment of progress payments. At Timber Creek Construction, we have a “delay condition” in our contract that we can stop working on a project if a progress payment is not received promptly.
Construction customers don’t like surprises.
The Payment Application is more than a simple invoice. It’s given to the customer with each invoice so they can see what they are being billed for. It shows the customer the price of a construction project broken down by item. It tracks the breakdown of payment being made, what has been paid up to this point in the project, and what remains to be paid.
Communication between building contractors and customers is one of the biggest issues in the construction industry. As the professionals in this agreement, the responsibility to be clear about what the project includes and when payments will be expected lies with the builder.
Before the project starts, if there are signed proposals and contracts along with payment applications it makes the whole process of asking for a progress payment easier.
If you would like more information about proposals, payment applications, other business BUILDing tools, or would like to learn more about our business coaching and consulting, schedule a free 30-minute meeting or follow the links above.
