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how to get payments on net 25th as a sub contractor

Hey guys, I am an electrical contractor in WA, and am curious about the payment process between the GC, Me, and my supplier. First, the GC submits for payment on the 25th of every month. I assume the GC will get paid on Net 25th. Will I, ideally, get paid that same day? So I in turn can pay my supplier who is also billing me on Net 25th? If not what can I do to float that money until the GC pays me?

1 reply

Mar 26, 2020

Payments should be made in line with what's in the contract. And, it's probably pretty rare for a GC to pay their subs within the same day that they receive payment. So, if you're looking for faster payment terms, then including those in your contract would likely be the best place to start. With that being said, it might be hard to have a contractor agree to pay you on the same day they receive payments - processing payment will usually take some time. Net 30 terms, or terms which require payment some short time (i.e. a few days) after the GC gets paid, are common. As far as floating supplier costs - that can be tricky. If your supplier is billing at a rate that's faster than you're being paid, then that's a recipe for payment problems. So, a good first step is to make sure that your payment terms with your customers are at least as long as your payment terms with your vendors. Though, it's probably wise to add some cushion there - maybe a few days, if that's agreeable. Further, making sure you have a strong relationship with the supplier and that you're updating them with information as the project and billing progress can help to avoid contentious payment situations. But, if your supplier is beating down your door to get paid, then floating those costs until the GC makes payment may be necessary. That will put a strain on cash, though, and in some cases may even necessitate looking elsewhere - like using factoring agreements, credit lines, SBA loans, etc. But again, before resorting to that, it's a good idea to fix the payment chain by using terms that make sense for your customer, you, and your vendor. And, even when your current terms aren't great, discussing things with your vendor can help to smooth out late payments or other payment issues.

How to speed up payments if you're being slow-paid by your customer

Slow payment is extremely common in construction. Even if your contract terms with your customer make sense, it's common for them to pay outside of those terms. To speed up payments, a good first step is to send preliminary notices. By sending notice, you can improve communication, collaboration, and transparency from the start of the job. Plus, when notice is required and sent, that will preserve the right to make payment claims later on, if necessary. And, preserving mechanics lien rights is a great way to make sure a customer pays on time. Further, when payment hiccups do happen, sending documents like invoice reminders can nudge the customer to make payment. Simple reminders, when used effectively, can work to speed up payments while also strengthening your relationship. More on that here: How Invoice Reminders Help Contractors Get Paid Faster. If things start to become a little more contentious, or if payments are really falling behind, then using a payment demand letter or even a Notice of Intent to Lien can lead to faster payments.

Help setting your payment terms and writing your contracts

Reaching out to a construction accountant or a Washington construction attorney can help to provide more clarity here. They could review your current payment terms and contracts, then advise on how to navigate your current terms and prepare better terms moving forward.

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