How can subcontractors survive net-30 or net-60 payment terms?

Subcontractors survive net-30 and net-60 terms by treating cash as something to schedule, the same as crews: bill on the first day the contract allows, never miss a billing cutoff, line up supplier terms with the dates you are paid, hold a credit line sized to your payroll, and follow up on every invoice the day it becomes late.

Why the gap is wider than the terms say

Net 30 rarely means 30 days. Work done in the first week of the month is billed at the end of the month, approved by the general contractor, billed to the owner, paid to the GC, and then paid to you. Sixty to seventy-five days from the work to the money is normal. Payroll is due every week.

A crew of six costing $9,000 a week has cost about $90,000 before the first check for that work arrives. That is the amount the business has to carry.

Know your contract

• Pay-when-paid sets the timing: you are paid after the GC is paid. In many states a court will still require payment within a reasonable time.
• Pay-if-paid shifts the risk: if the owner never pays, the GC owes you nothing. Some states refuse to enforce it and some enforce it as written.

Read which one you are signing. The enforceability depends on the state, so ask an attorney when the amount is large.

Before the job starts

• Check who you are working for. Ask other subcontractors how the GC pays. Price slow payers accordingly, or pass.
• Ask for a mobilization line on the schedule of values, so your first bill covers real early costs.
• Ask to bill for stored materials.
• Get deposits on special-order material where the contract is directly with an owner.
• Negotiate retainage down, or its release at completion of your own scope.
• Send your preliminary notice if your state requires one to keep lien rights. It is routine, and the deadlines are short.

During the job

• Bill on the cutoff date, every time. A day late usually costs a month.
• Bill everything you have earned. Underbilling by 5 percent each month is an interest-free loan to the project.
• Get change orders approved in writing as they happen. Unapproved changes cannot be billed, and they are the slowest money on any job.
• Send complete paperwork. Waivers, certified payroll and insurance certificates in the form the GC wants, so nothing gives them a reason to hold the application.

Match what goes out to what comes in

• Supplier terms. Ask your main suppliers for net 45 or net 60 on project accounts. Many will agree for a customer who pays reliably.
• Joint check agreements let the GC pay you and the supplier together for large material orders, which takes that cost off your credit.
• A line of credit sized to six to eight weeks of payroll. Arrange it while the books look good, not in the week you need it.
• Early-payment discounts and factoring are expensive. Two percent for payment twenty days sooner is a very high annual rate. Use them for emergencies only.

Collect on purpose

Most late payments are not disputes. Someone is missing a document, or nobody asked.

1. Confirm the application was received and is complete, a few days after sending it.
2. On the day it becomes late, ask what is holding it.
3. Keep following up every week, in writing, with the same person and their manager.
4. Know your rights. Prompt payment laws in most states add interest to late payments, and lien and bond claim deadlines do not wait.

Forecast thirteen weeks

A simple weekly table of cash in (by job, by expected date) and cash out (payroll, suppliers, rent, insurance, taxes) shows a shortfall two months before it arrives, while there is still time to do something about it.

Where ConstructStream fits

ConstructStream shows what every client owes and how old it is, and sends late invoices a polite reminder on their own, under the project manager's name, until they are paid. Retainage held is tracked per job, and invoices and payments stay in step with QuickBooks, so the forecast starts from numbers that are already right.