Why payment runs late on construction projects and how to shorten the cycle
The payment cycle on a construction project is the chain that runs from doing the work to receiving the money: execution, measurement, backup sheets, assembling the progress claim, reviewing by the supervisor, authorisation, invoicing and payment. When the money arrives late, the cause is almost always in the first links —the ones the contractor controls— and not in the last one.
It is an uncomfortable conversation, because the natural reflex is to blame the client. But if you measure the time each link takes, the pattern shows up fast.
The chain, link by link
| Link | Who controls it | Where time is lost |
|---|---|---|
| Execution | Contractor | — |
| Measurement on site | Contractor | Done at closing, not as the work happens |
| Assembling backup sheets | Contractor | Reconstructed from memory |
| Assembling the progress claim | Contractor | Depends on everything above being ready |
| Supervisor’s review | Client | Comments that send everything back |
| Authorisation | Client | Contractual deadlines |
| Invoicing | Contractor | Waits on authorisation |
| Payment | Client | Contractual deadlines |
The links the client controls have deadlines defined in the contract and are reasonably predictable. The ones the contractor controls have no deadline, are never measured, and are where the delay piles up.
The rejection cycle
Here is the hidden cost that almost nobody accounts for.
When a claim comes back with comments, it is not delayed by a few days: the clock restarts. You correct, resubmit, and the review period begins again. Each rejection cycle typically costs between one and three weeks.
And it is not an isolated event. Two rejections in the same month can push a payment from day 15 to day 60. On a project that spends on payroll and materials every single week, that is a cash problem, not a paperwork problem.
The practical conclusion is counter-intuitive: the variable with the biggest impact on your collections is not the contract’s payment term, it is your rejection rate. A 45-day contract with zero comments pays sooner than a 30-day one with two correction cycles.
The four real causes
Late measurement. If you measure at month end, you reconstruct from memory, without a contemporaneous sketch and without the supervisor present. Everything downstream inherits that weakness.
No progressive sign-off. Presenting a complete monthly package forces the supervisor to verify thirty days of work in a few days, much of which is no longer visible. It is a design that guarantees comments.
An unagreed format. Submitting in your format instead of the one the client expects generates comments that are not about substance but about form, and they cost exactly the same.
Undocumented covered work. Anything buried without a dated, signed-off record is quantity you will have to argue for, and frequently lose.
How to shorten the cycle
- Measure the day you execute. It is the highest-impact intervention and the hardest to sustain, because it demands daily discipline on site. Everything else depends on it.
- Get weekly sign-off, not monthly. Small, frequent records the supervisor can verify while the work is still visible. At closing, the claim is assembled by adding up what has already been signed off.
- Agree the format before the first claim. And ask for an example of an approved claim from another project of the same client. Nobody will refuse you, and it saves you the first learning cycle.
- Submit with days to spare. Never on the last day of the deadline. A margin of three to five days lets you absorb a minor comment within the same period.
- Measure your own rejection rate. How many of your last ten claims came back with comments, and of what kind. If most are about form, you have a cheap problem to fix. If they are about substance, the problem is in the measurement.
- Document whatever is about to be covered, always. A dated photo with an identifiable location and the supervisor’s sign-off, before burying it. No exceptions, because the exception is precisely the one that gets argued.
Frequently asked questions
- Can I charge interest on late payment?
- It depends on the contract and on the applicable law. Many contracts allow for it but it is rarely enforced, because of the commercial relationship. Before claiming it, check that you met your own submission deadlines: if you submitted late, the argument weakens.
- What do I do if the supervisor does not review within the deadline?
- Document the delivery with a dated acknowledgement and record it in the site logbook. Many contracts state that a claim not commented on within the deadline is deemed approved, but that must be verified in the specific contract before assuming it.
- Is it worth submitting claims more often?
- If the contract allows it, almost always yes. Fortnightly instead of monthly reduces the amount at risk, makes verification more manageable and shortens the cash cycle. It increases the administrative load, and that is the trade-off to weigh.
- How do I estimate my working capital needs?
- Measure the full cycle from the moment you start spending on a piece of work until you collect for it. If that cycle is 75 days, you need to finance 75 days of operating spend. Almost every contractor that goes under does so for this reason, not for lack of contracts.
- Is an early-payment discount worth taking?
- Compare the implied rate of the discount against your cost of capital. Three per cent for paying 30 days early is more than 36 % a year, usually dearer than any line of credit. But if you have no access to credit, the calculation changes.
Founder and CEO of Paladio. He has spent more than 15 years building financial products that touch the lives of millions of people. He writes about what he sees on site: how progress is really measured and where the money leaks.
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