Progress Payments: How to Never Be More Than One Check Behind

Here's a scenario every contractor knows:

You're 75% done with a $30,000 bathroom remodel. You've bought materials. You've paid your crew. You've worked three weeks.

And you've received $0.

The client said they'd pay "at the end." Now they're nitpicking every detail, threatening to withhold payment, and you have zero leverage because they already have all the work.

This is how contractors go out of business.

The Rule: Never More Than One Payment Behind

Here's the golden rule of contractor payments:

This means if you're doing a $30,000 job with four payments of $7,500 each:

• After milestone 1, you should have payment 1
• After milestone 2, you should have payment 2
• After milestone 3, you should have payment 3
• After milestone 4 (completion), you should have payment 4

At no point are you more than one payment ($7,500) behind.

If the client stops paying, you stop working. You're out one payment, not the whole job.

What Are Progress Payments?

Progress payments (also called milestone payments or draw schedule) break a large project into smaller, scheduled payments tied to specific points in the project.

Instead of:

• Deposit: $0
• Final payment: $30,000

You do:

• Payment 1 (deposit): $7,500
• Payment 2 (rough-in): $7,500
• Payment 3 (pre-trim): $7,500
• Payment 4 (completion): $7,500

Each payment is tied to a milestone. When the milestone is complete, payment is due.

How to Structure Progress Payments

Typical 4-Payment Schedule

Typical 3-Payment Schedule (Smaller Projects)

Material-Heavy Projects

If materials are a significant portion of the cost, structure payments differently:

This way, you're never fronting material costs.

Defining Milestones

Milestones need to be specific and verifiable. Vague milestones lead to disputes.

Bad Milestones

• "When it's done"
• "When I feel like it's halfway"
• "When we finish the bathroom"
• "At the end of week 2"

Good Milestones

• "After rough-in inspection passes"
• "After drywall is hung and ready for texture"
• "After flooring is installed and protected"
• "After final walkthrough, before punch list"

What "Substantial Completion" Means

The final payment is typically due at substantial completion — not when everything is perfect.

Substantial completion means:

• All scope items are installed and functional
• The space is usable for its intended purpose
• Only minor items remain (punch list)

Define this in your contract:

This prevents clients from withholding final payment over minor punch list items.

How to Present Progress Payments to Clients

Some clients push back on progress payments. Here's how to frame it:

1. It's Standard Industry Practice

"Progress payments are how every professional contractor works. It protects both of us by ensuring I have the resources to complete your project on time."

2. It Ensures Quality

"By breaking the project into phases, I can focus on each phase without worrying about cash flow. This ensures your project gets the attention it deserves."

3. It Protects the Client Too

"If I don't complete a milestone, you don't pay for the next one. This gives you leverage throughout the project, not just at the end."

4. It Matches Costs

"Payments are structured to match when I incur costs — materials at the beginning, labor throughout. This is how professional contracting works."

What If the Client Wants to Pay at the End?

Your response:

"I understand, and I appreciate that you plan to pay. Unfortunately, I can't front the entire project cost. Progress payments are how I ensure I can pay my crew and materials suppliers throughout the project. I'm happy to structure them in a way that makes sense for you, but I need to receive payment as work is completed."

If they still insist:

This is a red flag. Clients who won't agree to progress payments often don't plan to pay at the end either.

Handling Missed Progress Payments

What happens when a client doesn't make a progress payment?

1. Stop work immediately. Don't continue past the milestone until payment is received.
2. Send written notice. "Payment for milestone [X] was due on [date]. Work is paused until payment is received."
3. Don't accept excuses. "I'll pay you next week" means you're now working for free.
4. Resume only after payment. Don't restart until you have the check or confirmed transfer.

Critical: Your contract should include a stop work clause:

Progress Payments vs. Retainage

In some contracts, clients or GCs will hold back a percentage called retainage — typically 5-10% — until the project is complete.

Example:

• Payment 1: 22.5% (25% minus 10% retainage)
• Payment 2: 22.5%
• Payment 3: 22.5%
• Payment 4: 22.5%
• Retainage: 10% due 30-90 days after completion

Retainage is common in commercial work. For residential, you can often negotiate it down or eliminate it.

Key Takeaways

• Never be more than one payment behind. Structure payments so you can stop work without losing your shirt.
• Get a deposit. 25-50% before starting, more if materials are expensive.
• Use specific milestones. "After rough-in inspection passes," not "when it's done."
• Define substantial completion. Final payment is due when work is functional, not when punch list is perfect.
• Stop work if payment is missed. Include a stop work clause in your contract.
• Negotiate retainage terms. Cap it, specify release date, or eliminate it entirely.

Progress payments aren't just about getting paid. They're about maintaining leverage throughout the project. When you have their money, they have to pay attention. When they have all your work, you have nothing.