Advantages of How & When to Pay a Builder with Progress Payments

Posted by Madeline White on March 12th, 2024

If you are embarking on or starting a construction business, it is vital to understand when and how to pay your construction contractor. In this blog, we cover the ins and outs of progress payments, including the benefits of progress payments, and how and when to pay a builder with progress payments.

So, here in this post, you will learn the advantages of paying builders in Narooma and other places with progress payments.

What is progress payment?

Progress payment is a systematic way of paying contractors throughout the construction process. Instead of a lump sum payment when the project is completed, payments can be phased in a different stages of the construction process. This payment method provides financial flexibility for both the builder and the client and ensures that funds are allocated appropriately throughout the project timeline.

Advantages of Progress Payments

Progress payments bring numerous benefits to the success of the contractor, the client and the construction project as a whole. Here are some of these benefits:

Financial and Cash Flow Management

Progress payments enable contractors to effectively manage their cash flow. By receiving payment at key milestones, the professional builders in Canberra and other locations can cover ongoing expenses, purchase necessary materials and pay subcontractors quickly. Meanwhile, clients are paid for completed work, which improves financial management and ensures transparency and accountability.

Risk Mitigation

For the client, this reduces the risk of repayment without a guarantee of construction completion. Payment is made in parallel with the progress of the project, giving the client confidence and assurance that the work is being carried out as agreed.

Motivates Builders and Encourages Quality Work

Payments in line with construction progress motivate builders near Canberra to deliver quality work at every stage of the project. Knowing that rewards are linked to milestones completed will motivate builders to strive for excellence and ensure they exceed expectations.

How to develop an effective payment plan?

An important part of taking advantage of progressive payments is the development of a structured progressive payment plan. The main steps to consider are

• Agree on milestones: work with the contractor to set clear project milestones at key stages of the construction process. These milestones include site preparation, foundation completion, framing, electrical and plumbing installation and final finishing.
• Determine the percentage to be paid: Determine what percentage of the total project cost will be paid for each milestone. Common industry practice is to allocate payments proportionally to completed works and associated costs.
• Documentation and transparency: document the agreed payment milestones, percentages and due dates in the contract or agreement. This will ensure clarity and transparency for both parties and minimise potential misunderstandings.
• Regular communication: Maintain open communication with the builders near Narooma and other regions throughout the project. Discuss progress, confirm completion of milestones and ensure that construction is in line with expectations before payment is made.

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