How to write a payment schedule for large trade jobs

Introduction

Writing a payment schedule for large trade jobs like loft conversions, extensions, or full rewires requires careful planning. It is essential for protecting your cashflow and ensuring smooth project execution. Here’s how to effectively structure a payment schedule that suits your and your client’s needs.

Why payment schedules matter

A well-crafted payment schedule ensures steady cashflow. Long-term projects can strain financial resources, especially if unexpected costs arise. By setting clear payment terms, you minimise financial risk and ensure you have the funds necessary to progress without disruption.

Structuring a payment schedule

A structured payment schedule typically involves an initial deposit, stage payments, and a final payment upon completion.

• Deposit: Collecting a deposit between 10-25% of the total project cost before starting helps cover initial expenses like materials.
• Stage payments: With milestones as benchmarks, these payments are spaced throughout the project’s duration.
• Final payment: Paid once the project is completed to the client's satisfaction.

Example milestones

Milestones ensure both parties agree on project progression points. Example milestones include:

• First fix completion: For electricians, this means basic wiring. For builders, it includes structural elements.
• Second fix completion: All visible elements like socket faces for electricians and doors for builders.
• Plastering done: Internal walls are complete to a professional standard.
• Tiling complete: All tiling areas specified in the scope of work are fully tiled and grouted.
• Project sign-off: Final review and acceptance of work by the client.

Writing clear milestone definitions

Clear definitions prevent disputes. Specify exactly what each completed stage looks like. Include details such as “All wires installed and terminated” for electrical work or “All walls plastered to a smooth finish, ready for painting” for plastering work.

When to issue invoices

Link invoices to completion events rather than calendar dates. This approach ensures payment relates directly to work completed, reducing client disputes over unmet deadlines.

Handling material costs

For large jobs, decide whether to invoice separately for materials or include them in your stage payments. If separate, this helps clients see the division between labour and material costs. Otherwise, include material costs in your initial deposit and stage payments to integrate costs smoothly.

Retention clauses

Consider including a 5% retention clause, allowing you to hold back a percentage of payments during a defect liability period. This ensures any defects can be rectified without impacting the final payment. Evaluate the pros and cons based on the project's nature.

Pros:

• Encourages prompt correction of minor defects.
• Satisfies client concerns over quality.

Cons:

• May delay total payment receipt.
• Can complicate final payment procedures.

Managing late stage payments

If a client delays payment, remind them promptly. Use reminders sent via email or post detailing your terms and applying any contractual late payment charges. Persistent non-payment may necessitate legal action.

Statutory right to interim payments

For construction contracts over £5,000, statutory rights to interim payments may apply under the HGCRA 1996. These rights ensure you can request periodic payments based on work progress, protecting your liquidity.

Including a payment schedule in your contract

Include clear clauses in your contract to outline payment expectations. Here’s a simple template:

• Payment terms: “Invoices must be paid within X days of issue, based on completion of defined milestones.”
• Deposit details: “A deposit of X% is required before project commencement.”

For more on tooling and contracts, visit our invoice generator tool and our blog on retentions.

Further details on statutory rights can be found in the gov.uk construction contracts guidance.

FAQs

1. How much should I charge for the initial deposit?

   A deposit typically ranges from 10% to 25% of the total project cost, depending on project size and initial material requirement.

2. What should I do if a client disputes a payment milestone?

   Refer them to the milestone definitions in your contract. Clear documentation of works done helps resolve disputes.

3. How do I calculate stage payments?

   Divide the remaining project balance after the deposit into equal sums tied to key project milestones.

4. Should I offer retention on smaller projects?

   While less common, you may offer it as a client reassurance measure, though it might complicate smaller projects unnecessarily.