YOUR PAYMENT TERMS DECIDE YOUR CASH FLOW
The three most common subcontractor payment clauses — net 30, pay-when-paid, and pay-if-paid — look similar in print but create radically different cash positions. Net 30 means you get paid 30 days after invoice. Pay-when-paid means you get paid after the GC gets paid (so the GC’s 60-day collection cycle becomes your 60-day collection cycle). Pay-if-paid means if the GC doesn’t get paid, you don’t either — you absorb the owner’s credit risk. Most subs sign whatever’s in front of them. The ones who negotiate read the clause, push for terms that match the actual risk, and walk from contracts that don’t.
The payment terms section is short. Three sentences in a 40-page contract. Most subs skip it. The ones who get paid don’t.
WHAT EACH ONE ACTUALLY DOES
PAYMENT DUE 30 DAYS AFTER APPROVED INVOICE
The simplest. You bill the GC. The GC approves the bill. 30 days from approval (or from receipt, depending on the language) you get paid. Net 30 is independent of the owner’s payment to the GC. The GC is the one taking the risk that the owner pays. You’re on a fixed timer from approval. This is the gold standard for sub-side terms.
PAYMENT DUE A REASONABLE TIME AFTER GC RECEIVES PAYMENT
This pushes the owner’s payment cycle onto you. If the owner takes 60 days to pay the GC, the GC takes another reasonable time (usually 10 days) to pay you — so you’re effectively at 70+ days from invoice. The good news: courts generally interpret pay-when-paid as a timing mechanism, not a condition. If the owner ultimately doesn’t pay, the GC still owes you eventually. You’re sharing the timing risk, not the credit risk.
PAYMENT TO SUB CONDITIONED ON GC RECEIVING PAYMENT FROM OWNER
This one is dangerous. Pay-if-paid clauses make GC payment to you contingent on owner payment to the GC. If the owner defaults, declares bankruptcy, or disputes payment, you don’t get paid — period. You’ve absorbed the owner’s credit risk for work you performed. Some states ban pay-if-paid as unenforceable. Most don’t. The clause language usually contains words like “condition precedent” or “sub assumes the credit risk of owner.” If you see those phrases, the clause is pay-if-paid even if the heading says something else.
SPECIFIC LANGUAGE TO LOOK FOR
RED FLAGS FOR PAY-IF-PAID
"Receipt of payment from Owner is a condition precedent to payment to Subcontractor." "Subcontractor expressly assumes the risk of Owner’s nonpayment." "Subcontractor’s sole recourse for payment is against Owner." Any of these phrases convert what looks like a timing clause into a credit-risk-transfer clause. The legal effect is dramatic. Read every word.
YELLOW FLAGS FOR HARSH PAY-WHEN-PAID
"Subcontractor shall be paid within X days of GC’s receipt of payment from Owner." Without a cap, X could be 90 days, 120 days, or longer. Look for "within a reasonable time" language — that gives you legal recourse if the GC sits on payment after they’ve been paid. Push for capped language: "within 10 days of GC’s receipt."
GREEN FLAGS FOR FAIR NET 30
"Payment is due within 30 days of approved invoice, regardless of Owner payment status." Or: "Subcontractor shall be paid within 30 days of Subcontractor’s submission of pay application meeting the requirements herein." The cleaner the language, the less interpretation room. Tight net-30 clauses are the gold standard.
FIVE ASKS BEFORE SIGNING
STRIKE PAY-IF-PAID LANGUAGE
If the contract has condition-precedent language, ask for it to be removed. Some GCs will. Some won’t. The ones who refuse are signaling something about the project’s funding strength. Worth knowing before you commit crew and capital.
CAP PAY-WHEN-PAID TIMING
If you can’t get to net 30, push for capped pay-when-paid: "paid within 10 days of GC receipt of payment from owner, but no later than 75 days from invoice." The 75-day backstop protects against owner-side delays cascading into 120+ day cycles.
NEGOTIATE PROMPT PAY ACT PROTECTIONS
Most states have prompt pay statutes for public construction and some for private. Make sure the contract doesn’t waive those statutory rights. Some contracts explicitly disclaim them. If you see "Subcontractor waives any rights under [state] prompt pay statutes," push back.
ADD INTEREST ON LATE PAYMENT
Specify that overdue payments accrue interest at a stated rate (statutory rate or contract rate). Most GCs accept this if pushed. The interest itself isn’t the point — the existence of the clause changes the AP team’s priority when bills age.
PRICE FOR THE PAYMENT TERMS
If you can’t negotiate the terms, price them. Pay-when-paid work needs a margin premium to cover the cash gap financing cost. A standard markup of 1.5–3% on top of normal pricing covers most slow-pay carry costs. The math: if your cost of capital is 8% annualized and you’re carrying receivables 60 extra days, that’s ~1.3% of contract value in financing cost. Build it in.
SOME WORK ISN’T WORTH WINNING
Three signals worth walking away from a contract regardless of the dollar value:
- Pay-if-paid clause that the GC refuses to remove on a project where you don’t know the owner’s financial strength.
- No prompt pay protections combined with pay-when-paid language and no timing cap. That’s a structure designed to slow-walk you.
- Aggressive retention (10%+) combined with pay-when-paid and substantial-completion holdback. Money locked at every stage.
Every job you take is a credit decision. Most subs don’t think of it that way. The ones who survive structurally bad contracts didn’t survive them — they avoided them.
The contract you didn’t sign is the loss you didn’t take.
HOW SPM MANAGES PAYMENT-TERMS RISK
Contract review on every new bid is part of the SPM engagement at the Executive Financial tier. Pay-if-paid clauses get flagged. Pay-when-paid timing gets analyzed against the GC’s payment history. Margin premiums for slow-pay work get built into the bid math, not absorbed silently. The owner makes informed decisions about which work to chase and which to skip.
The output: a portfolio of work where the payment terms match the actual cash risk being taken. Not every contract gets renegotiated. But every contract gets read — and priced — correctly.
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