How to Manage a Contractor Payment Schedule
The payment schedule between a homeowner and a contractor is one of the most commercially important elements of any building project. Get it wrong — either by paying too much upfront or by creating a schedule that doesn't reflect the progress of the works — and you either lose financial leverage over the contractor's performance, or you create cash-flow pressure that disrupts their ability to resource the project. Here's how to structure it properly.
Principles of a Good Payment Schedule
Payment should follow progress. The fundamental principle is that money should flow to the contractor in proportion to the value of work completed. At no point during the project should the contractor be significantly behind the value they have been paid — this is called being "in advance" of the works, and it reduces your leverage to insist on performance.
The contractor should not self-fund the project. Conversely, a contractor who is consistently waiting for payment that is overdue cannot resource the project properly. Late payment — even where the contract technically permits it — disrupts trade programming and supply chain relationships.
Retain something until the end. A retention mechanism — typically 2.5–5% of the contract sum held back from each payment and released at practical completion (or in two stages: at practical completion and at end of defects liability period) — provides the client with leverage to ensure snagging and defects are addressed promptly.
Typical Payment Structures
Milestone-based payments. Suitable for smaller or simpler projects. Payment is triggered by defined milestones — for example: 10% deposit on signing, 25% on structural works complete, 25% on first-fix M&E and plastering complete, 25% on second-fix and finishes complete, 15% on practical completion and snagging sign-off. Each milestone should be clearly defined and verifiable.
Monthly valuations. More appropriate for larger or longer projects. An independent valuation of the works completed in each calendar month is carried out — by the contract administrator, QS, or agreed between the parties — and payment is made against the valuation within a defined period (typically 14 days).
Red Flags in Payment Requests
Be cautious of: a request for more than 10–15% deposit before work starts; requests for large payments unrelated to identifiable completed work; resistance to a retention mechanism; or a proposed payment schedule that front-loads payment relative to the programme. These are indicators of cash-flow pressure in the contractor's business, not a sign of a well-run project.
RCB provides a clear payment schedule aligned to project milestones as part of every contract. 07359 872594 | contact@rcbgroup.co.uk | www.rcbgroup.co.uk