PAY WHEN PAID CLAUSE IN CONSTRUCTION, WHAT IT MEANS.
A pay-when-paid clause means the general contractor isn't required to pay you until they receive payment from the owner. In most states the clause is enforceable and can legally delay your payment by 60, 90, or even 120 days, because the contract says they don't have to pay you until they get paid. Understanding the clause, negotiating it before signing, and protecting cash flow when it's in the contract is one of the highest leverage things a commercial subcontractor can do.
These clauses are standard in commercial subcontracts and most subcontractors sign them without working out what they do to cash. On a $600K electrical contract with a 90 day pay-when-paid cycle, you could be carrying $150K in completed work with no contractual right to payment until the GC collects from the owner. Knowing that before signing, and negotiating it where there's room, is the difference between a contract that works and one that puts you on the line of credit three months in.
WHAT IT MEANS.
A pay-when-paid clause is subcontract language stating that the general contractor isn't required to pay you until they receive payment from the owner, which defers your payment rather than eliminating it.
Before you sign, look for these words in the subcontract: condition precedent, contingent upon receipt of payment, or receipt of payment from owner is a condition precedent to payment. Those phrases suggest a pay-if-paid clause rather than a pay-when-paid clause, and the distinction is enormous if the owner defaults. Have your construction attorney review any clause you're uncertain about before signing it.
WHAT YOU ARE SIGNING UP FOR.
Timing condition, payment is delayed and not eliminated
A pay-when-paid clause conditions the timing of your payment on the GC receiving payment from the owner, so it defers your right to payment rather than removing it. If the GC doesn't get paid inside a reasonable time, most courts read pay-when-paid as moving the timing of payment rather than the obligation. In practice that means delays of 30 to 90 days beyond your billing date depending on the owner and GC payment cycle, and the question is how long you finance the work in the meantime.
Condition precedent, the GC may owe you nothing
A pay-if-paid clause is fundamentally different and considerably more dangerous, because it makes GC payment to you expressly conditional on the owner paying the GC. If the owner doesn't pay because of a dispute, a bankruptcy, or a default, the GC owes you nothing. In states where pay-if-paid is enforceable, a subcontractor who has completed the work can be left with no contractual right to payment at all, and most states require explicit, unambiguous language to enforce it while some prohibit it entirely.
Your line of credit was sized for a normal cycle
The maximum outstanding receivable during a long pay-when-paid project is typically 2 to 3 months of billing at peak production. That figure is the working capital requirement for the job, whether or not anybody calculated it before mobilization. If your available line of credit is smaller than that number, you'll be cash negative on a profitable contract, and the time to size the facility is before mobilization rather than after.
WHAT IT LOOKS LIKE IN DOLLARS.
On a $600K electrical subcontract with monthly billing, where the GC gets paid 60 days after your billing and processes your payment 30 days after that, you carry 90 days of completed work before the first payment. Month one billing of $75,000 goes out with the GC not yet paid by the owner, and your clock starts. Payment comes in at day 90, after the GC collects and processes the check. By month three, $225K or more is outstanding, which is also the line of credit requirement to fund payroll and vendors before the first check.
Carrying $200K for 90 days at a 7 percent line of credit rate costs approximately $3,500. On a $600K contract that's 0.6 percent of contract value. Know that figure before you bid, because 0.6 percent is a real slice of a commercial subcontract margin and it's entirely avoidable as a surprise.
WHAT TO DO BEFORE YOU SIGN.
Push for language capping the delay: pay when paid, but no later than 30 days after the GC billing cycle, or pay when paid, but not to exceed 60 days from invoice submission. That converts an unlimited delay into a bounded one you can plan around. It's the single most useful sentence you can add to a subcontract.
Work out the GC's own billing timing before signing. If the GC bills the owner monthly on the 25th and the owner pays net 45, your earliest payment is day 75 after your invoice. Model that out before the contract is signed rather than discovering it in month three.
Calculate the maximum outstanding receivable during the project, typically 2 to 3 months of billing at peak production, and treat that number as the working capital requirement. Size the facility to cover it before mobilization, not after you're already on site and cash tight. A profitable contract you can't fund is still a problem.
Map each project's expected payment date explicitly in the 13 week cash forecast rather than assuming a generic 30 days. Track pay-when-paid payment history by GC as well, because if a GC consistently pays at 75 days against a 45 day contractual cycle, the forecast should say 75. That's how a Friday payroll crisis becomes a planned line of credit draw instead.
On a long pay-when-paid cycle, the financing cost belongs in the bid. Carrying $200K for 90 days at a 7 percent line of credit rate costs approximately $3,500, which is 0.6 percent of a $600K contract. Know the number before you bid it rather than absorbing it afterward.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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