Most subcontractors sign pay-when-paid subcontracts without calculating what the delayed payment timing actually costs. Here is the dollar figure — and what to do about it before you sign.
Pay-when-paid does not just mean the GC pays you later. It means you fund the gap between when your costs go out and when GC payment arrives — at whatever the owner's payment pace is, which is often slower than the subcontract terms suggest. Every day of payment delay has a real financing cost. Most subcontractors have never calculated it. When they do, the number changes how they bid.
The owner is 45 days late paying the GC. The GC is waiting. Your crews worked. Your material was purchased. You are funding the owner's payment delay from your operating cash or line of credit — at your cost of capital — with no compensation from the subcontract because pay-when-paid makes it your contractual responsibility.
Unlike a change order for changed conditions or a delay claim for owner-caused delays, the financing cost of pay-when-paid payment delays is almost never recoverable. It is absorbed silently into operating cash and eventually shows up as the unexplained gap between P&L profit and bank account balance that most subcontractors cannot articulate.
A subcontractor with four active jobs under pay-when-paid terms with four different GCs has four independent owner payment risk exposures simultaneously. If two owners are slow-paying in the same month, the combined delay can create a cash crisis even though the business itself is performing well on every job.
Total annual billings under pay-when-paid subcontracts × average payment delay beyond 30 days × your cost of capital (LOC rate or opportunity cost). Example: $4M in billings, 30-day average delay beyond net 30 terms, 8% cost of capital = ($4M × 30/365 × 8%) = $26,300 in annual financing cost on that delay alone. Add to that any months where delay exceeds 30 days and the number grows quickly.
SPM's pay-when-paid calculator at constructioncfo.net/pay-when-paid-bid-markup-calculator converts your average payment terms and cost of capital into a markup percentage to add to every bid. A GC whose owner typically pays in 75 days on net 30 subcontracts gets a 1.5–2% markup on your bid — invisible to them as a line item, visible to you as the margin that covers your financing cost. Use it on every bid under pay-when-paid terms.
Preserving lien rights is your most powerful protection against pay-when-paid risk extending into actual non-payment. A preliminary notice (or Notice to Owner depending on your state) filed early in the project puts the owner on notice of your lien rights and signals to the GC that you are paying attention. It does not mean you will file a lien. It means you can. That distinction changes how promptly payment arrives when it is slow.
Before signing, ask for a provision that caps the pay-when-paid delay: "GC shall pay subcontractor within 30 days of GC's receipt of payment from owner, but in no event later than [X] days from the date of subcontractor's invoice." This converts pay-when-paid from an unlimited delay risk into a bounded one. Many GCs will accept this — they want their subs funded enough to finish the job.
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