receivables
Deposits, Draws, and the Shape of a Job's Cash
A job can be profitable and still sink a business if the money arrives after it is spent. The payment schedule is a cash-flow instrument.
Two contractors run the same job at the same price with the same costs. One is paid a third up front, a third at a milestone and a third on completion. The other is paid in full thirty days after completion.
Both make the same margin. Only one of them has to finance the materials, the labour and the thirty days out of their own working capital, and in a bad month that difference is the business.
Cash out before cash in
The shape is the same in most trades. Material is bought before the work starts. Labour is paid weekly through it. Revenue arrives at the end, and then after terms.
So every job is a loan from the contractor to the customer, and the size of the loan is the peak gap between cumulative spend and cumulative receipts. Growth makes this worse rather than better: a business taking on more work is lending more, and running out of cash while profitable is the ordinary way a growing contractor fails. The SBA's manage your finances material is explicit that profitability and solvency are different questions.
The payment schedule is the lever that changes the shape, and it is set once, at contract, usually without anybody computing what it does.
A schedule that matches the spend
A workable principle: each payment should arrive at or before the cost it covers.
A deposit at signing covers mobilisation and the deposit on materials. This is the one most often skipped on smaller jobs, where the whole cost is then carried.
A payment at material delivery, for jobs where material is a large share of cost and is bought up front. The single highest-value draw in exterior trades, because it converts the largest cash outflow into a pass-through.
One or more progress payments at defined milestones. The word that matters is defined. "Halfway" is a dispute. "On completion of tear-off and dry-in" is an observable event with a date.
A final payment on completion, not thirty days after it, for residential work. Net terms are a business-to-business convention and applying them to a householder is a choice, usually an unexamined one.
Retention, if the contract has it, understood as a receivable with a long tail rather than as margin already earned.
Deposits have rules
How much may be taken as a deposit, and when, is regulated in some jurisdictions, particularly for home improvement work. Several states cap residential deposits as a percentage or a fixed amount, and several require deposits to be held in a particular way.
Separately, a sale made at the customer's home is generally subject to the FTC cooling-off rule at 16 CFR 429.1, with its three-business-day cancellation right and its requirement to give the buyer dated copies and a cancellation form. A deposit taken on such a sale is refundable if the buyer cancels within the period, which has an operational consequence worth planning for: do not spend it in the first three days, and do not order non-returnable material against it.
Both of these are state-specific on top of the federal floor. Check your own.
Make the milestone observable
Every progress payment dispute traces back to the same thing: the milestone was a description rather than an event.
A good milestone is something either party can verify by looking. Material delivered to site. Tear-off complete. Dry-in complete. Rough inspection passed. Each has a moment, and that moment can carry a photograph and a date.
A bad milestone requires judgment. "Fifty percent complete" is a negotiation about what the denominator is, held at the point where you need the money.
Writing the schedule in observable events costs nothing at contract time and removes an entire class of argument later.
Invoice the draw the day it is earned
A progress payment that is earned on Tuesday and invoiced the following Monday has given away a week of a cycle you deliberately engineered to be short.
Milestones should be a trigger, not a reminder. When the crew marks dry-in complete, the draw invoice should be ready to send that afternoon, with the completion photograph attached, which also makes the milestone self-evidencing.
Know your own number
One figure makes all of this concrete, and almost no small contractor has it: the peak cash gap on a typical job.
Take a representative job. Plot cumulative cost by week and cumulative receipts by week. The largest vertical distance between them is how much of your own money a single job consumes at its worst moment. Multiply by how many jobs run concurrently and you have the working capital the business actually requires.
That number is the one that tells you whether you can take the bigger job, whether the growth plan is financed, and how much a change to the payment schedule is worth. It is an afternoon of arithmetic, and businesses that have never done it tend to find the answer uncomfortable in a useful way.