# Payment Terms for Subcontractors?



## Atex_Molly (May 18, 2018)

Quick question - what is the standard for payment terms for subs?

I come from a manufacturing background and most of our terms were Net 30 or Net 45. Is it different in construction? We've got subs demanding payment the day they complete the work. Is that normal? That makes it a lot harder to plan and track finances.

Any help/insight is much appreciated!


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## tang (Jan 5, 2009)

Most all subs want payment on completion.


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## KAP (Feb 19, 2011)

Atex_Molly said:


> Quick question - what is the standard for payment terms for subs?
> 
> I come from a manufacturing background and most of our terms were Net 30 or Net 45. Is it different in construction? We've got subs demanding payment the day they complete the work. Is that normal? *That makes it a lot harder to plan and track finances.*
> 
> Any help/insight is much appreciated!


You just answered your own question why they want to be paid at the end of the job and not wait to be paid... :thumbsup:

They're no different...

If you want to develop a loyal sub following, develop your own policies that put everyone involved in your projects closer to the money, as it makes jobs run smoother, and keeps people happy... that means no Net 30 or 45 days for you either, but that you also getting paid by your customer at the completion of the job...

Based on the limited info, the underlying question usually potentially indicates that you don't have Capital Reserves or Emergency Fund to rely to avoid robbing Peter to pay Paul cycles (which are hard to get out of)... that also usually an indicator that you pay everyone else, and then pay yourself out of the "profit"... That's not what profit is for... Profit is what you pay your company... your pay should be included in your Labor numbers so you can pay yourself a steady paycheck...

Development of 3-6 months of Capital Reserves and Emergency Fund (which are funded by the Profit) go a long way to mitigating most of these issues...

If you don't have those... time to raise your prices and 100% of that price increase going forward (you were operating without it up to this point) goes towards developing 3-6 months of them... then after they're funded, it goes into a fund for equipment purchases, etc...

Subs talk... and if you're a good payer, treat them like you'd like to be treated, you develop long-term relationships of a team that will have your back...

Best of luck... 8^)


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## NYgutterguy (Mar 3, 2014)

I'll send a bill when I'm done. Usually get paid within a reasonable amount of time when I sub. 


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## Atex_Molly (May 18, 2018)

I don't want to sound like a cheapo, I am just genuinely unaware of the "norm" since I'm relatively new to the industry. I'm just starting to get a hand in the company finances to help with organization and metrics, so it's all very exciting to me.

I'll definitely have to do some more calculating to determine how much we'll need to keep on hand at all times.

Thanks for the feedback, knew I could count on you guys :thumbup:


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## Fishindude (Aug 15, 2017)

Our subs do monthly draws based on the percentage of the contract completed to date. If the client holds retainage, the we hold it from subs too.

You'd be surprised how we have to beg some of these subs to get their monthly invoices in on time.


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## Frenchy93 (Mar 4, 2016)

Fishindude said:


> Our subs do monthly draws based on the percentage of the contract completed to date. If the client holds retainage, the we hold it from subs too.
> 
> You'd be surprised how we have to beg some of these subs to get their monthly invoices in on time.


This, 
On big jobs, monthly draw, pay when get paid. On small jobs, I pay immediately upon a proper complete job.


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## Big Johnson (Jun 2, 2017)

I pay within a day or two of getting the bill.


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## Jaws (Dec 20, 2010)

Give me a bill before Thursday And you get a check Friday morning.

Roofer and drywall contractor and when I sub out painting the paint contractor all need to be paid when they're rolling up their tools. LOL


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## KAP (Feb 19, 2011)

The important thing to remember is that your subs are contracting with you, not the customer... 

If they've completed the work, there's no reason (other than being stuck in a rob Peter to pay Paul cycle, but again not their problem) not to pay them, just like you expect to be paid when you're done...

Money follows the path of least resistance... so do your subs... :whistling :laughing:

If they consistently have trouble getting the money in a timely fashion, that comes into play in your relationship... they have bills to pay to, and if you're going to gum up the works and make that harder, well...


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## Jaws (Dec 20, 2010)

It is important to pay people when you say you will pay them. There's nothing wrong with Net 30 Terms if that's the agreement you come to.

Personally they won't work for what I do around here, I am a diva Builder and I have to pay Diva rates and pay quickly. LOL


KAP said:


> The important thing to remember is that your subs are contracting with you, not the customer...
> 
> If they've completed the work, there's no reason (other than being stuck in a rob Peter to pay Paul cycle, but again not their problem) not to pay them, just like you expect to be paid when you're done...
> 
> ...


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## KAP (Feb 19, 2011)

Jaws said:


> It is important to pay people when you say you will pay them. *There's nothing wrong with Net 30 Terms if that's the agreement you come to.*
> 
> Personally they won't work for what I do around here, I am a diva Builder and I have to pay Diva rates and pay quickly. LOL
> 
> Sent from my SM-N920V using Tapatalk


Was anyone saying different? :blink:

The guy who doesn't pay for 30 days versus the guy who pays right away... an obvious choice on many levels (i.e. - bird in hand, consistent cash flow, less administration, less follow-up, less risk, etc. - IOW, no downside to getting paid after completing, but plenty on terms)... money follows the path of least resistance...

Sometimes we put our own obstacles in the river, instead of letting things flow naturally... exceptions to every rule...


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## Jaws (Dec 20, 2010)

KAP said:


> Was anyone saying different? :blink:
> 
> The guy who doesn't pay for 30 days versus the guy who pays right away... an obvious choice on many levels (i.e. - bird in hand, consistent cash flow, less administration, less follow-up, less risk, etc. - no downside to getting paid after completing)... money follows the path of least resistance...
> 
> Sometimes we put our own obstacles in the river, instead of letting things flow naturally... exceptions to every rule...


I took your post to mean you should pay immediately when they finish. Don't know why. LOL



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## KAP (Feb 19, 2011)

Jaws said:


> I took your post to mean you should pay immediately when they finish. Don't know why. LOL
> 
> Sent from my SM-N920V using Tapatalk


Because there is no reason not to pay when completed other than not being able to or you've contracted terms that are beyond that... given the choice, most would rather not wait 30 days, or give a discount to entice them to pay before then to maintain cash flow... they contracted with you, not the HO... whether the HO has paid you or not is irrelevant to what you owe them... subs generally favor those who are not high maintenance for obvious reasons... exceptions to every rule...

My posts are related to subs, how to develop good long term relationships, and putting your company in a position where things flow and it's not an issue...

Everyone's different though...


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## Jaws (Dec 20, 2010)

Like I said I pay same week. Same day if it is asked like the roofer ect... Most of the time I have to call my subs honey britches at the house or whatever to get me a bill lol

But, like I said in another thread today, I have two friends who do a big commercial work, one is a GC one is a subcontractor. Both go net 30 & Beyond all the time.

They are not playing Small Potatoes ball like me and a lot of guys on here. They are going after big ass contracts, they make and lose big money. They take my yearly income in a bag to Vegas type stuff lol. 

So it is a different game and they are willing to deal with those terms

5 years ago we looked at going full-time commercial and doing work in Austin and San Antonio, this is right when the recession was starting to end here and we were starting to get busy with residential though. 

One of our clients was a big commercial GC, he's retired now, very well off. His advice to me and my dad was to get real friendly with our Banker if we're going commercial LOL


KAP said:


> Because there is no reason not to pay when completed other than not being able to or you've contracted terms that are beyond that... given the choice, most would rather not wait 30 days, or give a discount to entice them to pay before then... they contracted with you, not the HO... whether the HO has paid you or not is irrelevant to what you owe them... subs generally favor those who are not high maintenance for obvious reasons... exceptions to every rule...
> 
> My posts are related to subs, how to develop good long term relationships, and putting your company in a position where things flow and it's not an issue...
> 
> Everyone's different though...


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## KAP (Feb 19, 2011)

Jaws said:


> Like I said I pay same week. Same day if it is asked like the roofer ect... Most of the time I have to call my subs honey britches at the house or whatever to get me a bill lol
> 
> But, like I said in another thread today, I have new friends who do a big commercial work, one is a GC one is a subcontractor. Both go net 30 & Beyond all the time.
> 
> ...


Commercials is a different animal... just as manufacturing is where he came from, as there are other factors involved that make terms necessary... 

From the looks of OP's website, they look like they are Resi...


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## Jaws (Dec 20, 2010)

This site has commercial and residential contractors. Fishindude is Industrial. I do both


KAP said:


> Commercials is a different animal... just as manufacturing is where he came from, as there are other factors involved that make terms necessary...
> 
> From the looks of OP's website, they look like they are Resi...


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## KAP (Feb 19, 2011)

Jaws said:


> This site has commercial and residential contractors. Fishindude is Industrial. I do both
> 
> Sent from my SM-N920V using Tapatalk


OK... :blink: This site's also got designers, inspectors, those who manufacture, those who have gone on to other careers, etc.

If he was asking about subs from a commercial or industrial perspective, I guess that would be relevant... my posts were not in the context of commercial, as it would muddy the waters and not be relevant to his question considering what his websites says he offers juxtaposed against his past professional experience...


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## Atex_Molly (May 18, 2018)

KAP said:


> From the looks of OP's website, they look like they are Resi...


We're 95% residential, a lot of new construction and exteriors.

I called a meeting yesterday with our CEO and head PM, essentially we want to get to a system like Jaws suggested:



Jaws said:


> Give me a bill before Thursday And you get a check Friday morning.


But for now we're paying as work is completed since there is work out the hoo-hoo and we want to keep our subs.


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## artisanstone (Nov 27, 2007)

I think one aspect not being discussed is that everything has a cost. 95% of the work done by my company and the group of subs I know well is done on a net 30 basis. This is residential btw. 

Basically, you have your bill in by the 25th or the 31st depending on the GC and you get paid when the bank draw comes in, which is normally by the 20th or so. 

This has a very real cost. For starters, I have a pretty good amount of money perpetually tied up in jobs that would otherwise be able to earn me interest. I also am the one who suffers if the money stops flowing for whatever reason. All of this has to be figured into the pricing. I'm basically investing in this instead of the market and need to see returns.

If, as a GC, you are willing to pay immediately or weekly then you need to see those same returns. If you are unwilling or unable, then you need to be prepared to pay a little more.:thumbsup:


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