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Pricing & Commercial

Payment schedules, stage payments, and deposits.

Cash flow is the lifeblood of construction businesses. A well-structured payment schedule aligns income with expenditure, reduces financing costs, and ensures the contractor is not funding the client’s project.

Authored by Alexandr Vreme & Maksym Vasylkov
Published July 2026 — Next review July 2027

Why payment structure matters

Construction projects typically require significant up-front expenditure before any revenue is received. Materials, plant hire, labour, and subcontractor costs all fall due before the first valuation. Without a payment schedule that matches the cost curve, contractors must fund the shortfall from reserves or borrowing — eroding the project margin before work is halfway complete.

Deposits

A deposit is paid on contract signing to secure the contractor’s commitment and fund initial costs such as:

• Ordering long-lead materials
• Setting up site welfare and accommodation
• Preliminary design or survey work
• Insurance premiums and bond fees

A typical deposit is 10% to 25% of the contract value, depending on the size and duration of the project. Deposits are usually refundable against the first stage payment or the final account.

Stage payments

Stage payments break the project into measurable milestones, each releasing a stated percentage or fixed sum. Common milestones include:

• Foundations complete
• Structure to windtight / roof on
• First fix (plumbing, electrical, carpentry carcass)
• Second fix (finishes, fittings, decoration)
• Practical completion and handover

Milestones must be objectively measurable — a dispute over whether a milestone has been reached can delay payment for weeks.

The payment application process

Under the Housing Grants, Construction and Regeneration Act 1996, the payment process follows a statutory timetable:

• Application for payment: the contractor submits an interim application showing the value of work completed and materials on site
• Valuation period: the contract administrator or employer values the work
• Payment due date: the date by which the payment becomes contractually due
• Final date for payment: the deadline by which the payment must be made (typically 14–30 days after the due date)
• Pay less notice: if the employer intends to pay less than the applied amount, a pay less notice must be issued within the specified period

Failure to issue a valid pay less notice means the employer must pay the full amount applied.

Miniature example: £150,000 extension

• Deposit on signing: £22,500 (15%)
• Foundations complete: £22,500
• Shell to windtight: £37,500
• First fix: £22,500
• Second fix: £22,500
• Practical completion: £22,500

Total: £150,000. Each stage is defined by clear measurable criteria documented in the contract.

Questions to ask

• Does the payment schedule match my cost curve?
• Are stage milestones clearly measurable and unambiguous?
• What happens if a milestone is delayed by the client or other trades?
• Have I included retention provisions in the payment terms?