Managing Cash Flow: A Contractor's Guide to Milestone Payments
Poor cash flow management is a leading cause of contractor business failures. We share tips for structuring milestone payments, managing material deposits, and securing project cash flow.
Structuring the Payment Schedule
A standard payment schedule includes a mobilization deposit (10%), followed by progress payments tied to verifiable construction milestones (foundation, framing, lock-in, interior finishes). Ensuring payment schedules align with project milestones keeps the contractor cash-positive throughout the build.
Managing Subcontractor and Material Vendor Terms
Contractors must coordinate customer progress payments with material vendor invoices. Negotiating 30-day payment terms with suppliers ensures you can buy rebar or concrete and receive client progress draws before payment is due, keeping your working capital stable.
Why Holdbacks and Retainage are Necessary
Client contracts typically specify a 5-10% holdback (retainage) on progress payments. This sum is released only after final project sign-off and the completion of defect checks. Builders must account for retainage in their cash flow forecasts to ensure they can pay subcontractors and close out projects without cash bottlenecks.