A contractor payment schedule is the part of a construction contract that splits the price into payments tied to phases, milestones, or billing periods. The contractor payment schedule also sets each due date, which protects your cash flow. This guide adds a copyable template, a worked example, and the rules that cap deposits.
A typical payment schedule for contractors combines a deposit, progress or milestone payments, and a final payment, but no single percentage split is standard. Project size, the contract form, lender rules, retainage terms, and state law all change the numbers. California, for example, caps the downpayment on home improvement work under its home improvement contract rules, so treat any sample split as a starting point.
What is a contractor payment schedule?
It's a written plan inside the contract that lists each payment, the work or milestone that triggers it, the amount, and the due date. The California Contractors State License Board recommends a payment schedule in the contract that states when specific phases start and end, and the price for each segment.
A good schedule answers four questions for both sides:
- What gets paid
- When it gets paid
- What proof of work goes with each request
- How much is held back until the end
When those answers are in writing before work starts, each invoice is easier to approve.
Construction payment schedule template
Copy this construction payment schedule template into your contract or estimate, then replace each placeholder with your own terms. The amount column uses formulas, so the template works for any contract value. Each row names the event that triggers the payment, the retainage held back, and the documents that should travel with the request.
| Payment | Trigger | Amount | Retainage held | Due | Documents to attach |
|---|---|---|---|---|---|
| Deposit | Contract signed | Deposit amount (check your state's cap) | None | On signing | Signed contract |
| Progress payment 1 | Milestone 1 complete (for example, rough-in passed) | Value of milestone 1 work | Retainage rate x payment | Days after request | Payment request, photos, lien waiver |
| Progress payment 2 | Milestone 2 complete | Value of milestone 2 work | Retainage rate x payment | Days after request | Payment request, schedule of values update, lien waiver |
| Change order | Signed change order, work done | Change order price | Retainage rate x payment | Days after request | Signed change order, time and material records |
| Final payment | Substantial completion and punch list | Contract value + change orders - all prior payments - retainage held to date | Retainage rate x payment | Days after request | Final payment request, conditional final waiver |
| Retainage release | Final acceptance | Total retainage held | None | Per contract | Unconditional final waiver, closeout documents |
Timeline of each payment's trigger and documents, with retainage held until final acceptance.
If you price jobs from a construction estimate template, carry its line items into the milestone values above. That way the schedule and the estimate add up to the same contract value.
Types of contractor payment schedules
This guide compares four common payment schedule structures. The right one depends on how long the job runs, how much you spend before the client sees progress, and what the client or lender requires. The table shows when each fits and where the cash-flow risk sits. A contract can also combine two, such as milestones with a final retainage release.
| Type | How it works | Best for | Main risk for the contractor |
|---|---|---|---|
| Completion payment | One payment when the job is done, sometimes after a deposit | Small, short jobs | You fund labor and materials until the end |
| Milestone payments | Payments tied to defined, inspectable phases | Remodels, new builds, specialty scopes | A delayed milestone delays the cash |
| Monthly progress billing | Requests each billing period for work completed against a schedule of values | Larger commercial and public work | Disputes over percent complete |
| Time and materials | Billing for actual hours and materials at agreed rates | Service work and uncertain scopes | Clients question hours without solid records |
The federal government makes progress payments monthly as the work proceeds on its construction contracts, or more often when the contracting officer decides. That same clause asks for an itemization of the amounts requested, tied to the elements of work in the contract.
How to create a contractor payment schedule
Creating a contractor payment schedule takes six steps: confirm the contract value and scope, choose a structure, set milestones and amounts, and set due dates and retainage. Then define the paperwork for each request and agree on how both sides will track it. Each step below shows what to decide and where the rules usually limit you.
Step 1: Confirm the contract value and scope of work
Start from the full contract value, including labor, materials, equipment, subcontractors, overhead, and profit. Then break the scope into phases a client can see and an inspector can sign off. Vague phases, such as half done, create disputes. Concrete phases, such as framing inspection passed, don't.
Step 2: Choose the payment schedule structure
Pick the structure that fits the job's length and risk. Short jobs often use a deposit and a completion payment. A general contractor payment schedule on a remodel or new build usually uses milestones. Larger commercial jobs bill monthly against a schedule of values.
Step 3: Define milestones and amounts
Set each milestone payment close to the value of the work it covers. Some states make this a legal requirement. Except for a downpayment, a contractor shall neither request nor accept payment that exceeds the value of the work performed or material delivered, under California's home improvement contract rules. On a California home improvement job, billing ahead of the work performed breaks that rule.
Step 4: Set payment terms, due dates, and retainage
Write a due date for every payment, measured from a clear event such as receipt of a proper payment request. Then set the retainage rate and when it's released. The amount of retainage withheld shall not exceed 10 percent of the approved estimated amount on federal construction work, under the federal retainage rule. State law and private contracts can set their own limits.
Step 5: Add documentation and approval requirements
Decide what proof goes with each request. On larger jobs, that can be a schedule of values. On GSA construction contracts, the schedule of values must contain sufficient detail to let the contracting officer evaluate applications for payment.
AIA Document G703-1992 breaks the contract sum into portions of the work in accordance with a schedule of values prepared by the contractor, as the AIA explains for its payment application forms. Those forms show work completed and stored to date, retainage, previous payments, change orders, and the current amount requested.
Add lien waivers to the list. A conditional waiver and release on a progress payment is only effective if the claimant is actually paid, according to California's guidance on conditional and unconditional waivers. It doesn't release anything until that payment arrives.
Step 6: Review, agree on, and track the schedule
Walk the client through the schedule before signing, attach it to the contract, and send every request in the same format. Track each payment against the schedule the way the AIA payment application forms do, showing previous payments, retainage, and the current amount requested.
Contractor payment schedule example
This illustrative construction project payment schedule shows how milestones play out on a remodel with one change order. It uses formulas instead of dollar figures, so it fits any contract value. C is the contract value, D is the deposit, R is the agreed retainage rate, and M1 to M3 are the values of each milestone's work.
Billed to date always equals paid to date plus retainage held. Not to scale.
| Payment | Trigger | Billed this request | Retainage held this request | Paid this request | Billed to date | Paid to date |
|---|---|---|---|---|---|---|
| Deposit | Contract signed | D | None | D | D | D |
| Milestone 1 | Demolition and rough-in passed | M1 - D | R x (M1 - D) | (M1 - D) - retainage | M1 | M1 - retainage to date |
| Milestone 2 | Drywall and fixtures set | M2 | R x M2 | M2 - retainage | M1 + M2 | Billed to date - retainage to date |
| Change order | Added outlet circuit, signed and done | CO | R x CO | CO - retainage | M1 + M2 + CO | Billed to date - retainage to date |
| Milestone 3 | Finishes and punch list complete | M3 | R x M3 | M3 - retainage | C + CO | C + CO - total retainage |
| Retainage release | Final acceptance | None | Released | Total retainage | C + CO | C + CO |
Two habits make this example work. The deposit is credited against the first milestone, so the same work isn't billed twice. Every request shows billed to date, retainage to date, and paid to date, so the client can check the math against the last payment before approving the next one.
Payment schedule rules that limit deposits and timing
Payment schedule rules come from state law, such as California's home improvement contract rules, from federal clauses such as the prompt payment clause, and from your contract. The examples below show how far the rules can reach. Check your own state's contractor board and your contract before you set terms, and treat these examples as questions to ask rather than legal advice.
The downpayment limit for California home improvement work says the downpayment shall not exceed one thousand dollars ($1,000) or 10 percent of the contract amount, whichever is less. When payments come before completion, the contract must include a schedule of payments in dollars and cents tied to the work and materials. The statute also lets a contractor furnishing the bonds, bond equivalents, or joint control approved by the registrar accept payment prior to completion.
Progress payments on federal construction contracts are due 14 days after the designated billing office receives a proper payment request, under the federal prompt payment clause. The payment office pays an interest penalty automatically when it pays late. The clause also requires a subcontract payment clause that obligates the prime contractor to pay subcontractors for satisfactory performance not later than 7 days from receipt of payment. Retained amounts are due as the contract specifies or, if it doesn't, 30 days after the contracting officer approves release.
On federal construction contracts, payment deadlines run from the government to the prime contractor and on to subcontractors.
If a federal contract sets no payment date at all, the Prompt Payment Act sets the required payment date at 30 days after a proper invoice is received. Outside federal work, state law and the contract set the terms, so put a due date on every line.
Contractor payment schedule vs. construction draw schedule
The payment schedule sets when the owner pays the contractor. A construction draw schedule sets when a lender releases loan funds to the borrower. On a financed project, the owner's payments to you can depend on the lender releasing each draw, so the two schedules need to line up. Our construction draw schedule guide covers the lender side.
Lender draws fund the owner, and the owner's payments fund you.
When a lender is involved, ask for its draw schedule before you finalize yours, and match your milestones to its inspection points. That keeps your payment requests from waiting on a draw that hasn't been approved.
How to avoid contractor payment delays
Common causes of payment delays include incomplete requests, missing lien waivers, and a schedule the client doesn't understand. Send every request with the same backup on the day the milestone is reached. Follow up on the due date rather than weeks later. Clients approve requests they can check line by line against the schedule.
Cathie E., a ClockShark customer in construction, describes billing straight from the field on ClockShark's testimonials page: "Employees can add a work order so I can bill customers immediately and cut the collection period."
Lien paperwork matters to the client as much as to you. Under California's rules, an owner may withhold the next payment until they get the unconditional releases for the previous payment. Send those releases as soon as each payment clears. If a client still doesn't pay, a mechanics lien is a hold against the property filed by an unpaid contractor, subcontractor, laborer, or supplier, as the CSLB defines a mechanics lien.
For reminders, demand letters, and collections, see our guide to unpaid and late invoices.
How ClockShark helps you back up every payment request
Each clock-in on the ClockShark app logs the employee, job, task, and location, as ClockShark's time reports page explains. ClockShark integrations work with accounting and payroll software such as QuickBooks, Sage, ADP, and Xero.
Consistent time records also cut office work. Caspar Building Systems, a general contractor in Wyoming, had eight superintendents each recording time their own way before it moved timekeeping into ClockShark. Within a year, Caspar saved $1,000 per month and over 10 hours a week, according to its customer story.
Marvin E., an estimator in construction, describes how ClockShark helps field teams manage their time. The office then processes payments more accurately through time tracking and attendance verification, as Marvin's review of ClockShark explains.
"We are now tracking time far more reliably and are able to keep up with what stages jobs are at which means we can invoice out much faster." Cass C., an office manager, says so in a ClockShark review.
ClockShark uses each employee's time and base pay rate to calculate tracked labor cost for a job. See how ClockShark job costing works to track that cost while the work is underway.
Frequently asked questions about contractor payment schedules
What is the normal payment schedule for a contractor?
A normal contractor payment schedule is a deposit, progress or milestone payments as work is completed, and a final payment with retainage released at the end. No single percentage split is standard. In California home improvement work, the downpayment cap limits the deposit to $1,000 or 10 percent of the contract amount, whichever is less.
How long do contractors wait to get paid?
On federal construction projects, progress payments are due 14 days after the designated billing office receives a proper payment request, under the federal prompt payment clause. Late payments carry an interest penalty paid automatically. Outside federal work, state law and the contract set the terms, so write a due date for each payment into the schedule.
When should a contractor be paid?
A contractor should be paid as the work proceeds, after each completed phase or billing period. Apart from the downpayment, California home improvement law bars a contractor from requesting or accepting payment beyond the value of the work performed or material delivered, under the state's home improvement contract rules.
