Contractor Payment Terms Example

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Contractor Payment Terms Example: Understanding and Negotiating Payment Schedules

As a contractor, getting paid on time and in full is critical to your business`s success. But it`s not always easy to negotiate payment terms that work for both parties. In this article, we`ll explore common contractor payment terms and provide an example payment schedule that you can use or adapt as needed.

Understanding Payment Terms

Before we dive into the example, let`s review some common payment terms you may encounter as a contractor.

– Net 30: This means the invoice is due 30 days from the invoice date.

– Net 60: This means the invoice is due 60 days from the invoice date.

– Progress payments: These are payments made at specific milestones or stages in the project. For example, you may receive 25% of the total payment after completing the initial design phase, 50% after completing the construction phase, and so on.

– Retainer: This is a lump sum paid upfront to secure the contractor`s services. The retainer amount is typically deducted from the final payment or billed against it.

– Time and materials: This payment method is based on the actual time spent and materials used for the project. The contractor invoices the client on a regular basis for the hours worked and materials purchased.

Example Payment Schedule

Now let`s take a look at a sample payment schedule for a construction project. Keep in mind that payment terms will vary depending on the project`s size, complexity, and other factors.

Phase 1: Pre-construction

– Retainer: $5,000 due upon signing the contract

– 25% of total project cost due upon completion of the pre-construction phase

Phase 2: Foundation and framing

– 30% of total project cost due upon completion of the foundation and framing phase

Phase 3: Mechanical and electrical

– 20% of total project cost due upon completion of the mechanical and electrical phase

Phase 4: Interior finishes

– 15% of total project cost due upon completion of the interior finishes phase

Phase 5: Final inspection and punch list

– 10% of total project cost due upon completion of the final inspection and punch list phase

Phase 6: Project closeout

– Final 5% of total project cost due upon completion of the project closeout phase

Negotiating Payment Terms

When negotiating payment terms with a client, it`s important to be clear and upfront about your expectations. Consider the following tips:

– Understand the client`s payment process: Some clients require multiple approvals or payment reviews before issuing payment. Make sure you understand their process and factor it into your payment schedule.

– Be realistic: Don`t agree to a payment schedule that you can`t meet, as this can damage your reputation and future business opportunities.

– Offer options: If the client requests a payment schedule that doesn`t work for you, offer alternative options that will still meet their needs while ensuring you get paid fairly and on time.

Conclusion

As a contractor, negotiating payment terms is a critical part of your job. By understanding common payment terms and crafting a clear payment schedule, you can ensure that you get paid fairly and on time for your hard work. Use this example payment schedule as a starting point for your next contract negotiation.