Retainage, Pay-When-Paid, and a Supplier on Credit Hold

Position:

• Billed to date: 40% × $1,200,000 = $480,000. Retainage withheld: 10% = $48,000.
• Receivables $384,000 against payables $295,000 looks like a $89,000 positive - but the payables are due in 30 days and the receivables are payable 60 days after the GC gets paid. The gap is a timing gap, not a margin gap.
• Available credit: $150,000 - $90,000 = $60,000.
• Near-term outflow: $295,000 of payables plus roughly $114,000 of payroll over the next six weeks. Against $60,000 of available credit, you are short well over $200,000 unless collections land on time - and the contract gives the GC no deadline at all.

Biggest risk: the supplier credit hold. It does not just cost money. A held rough-in package stops production, which stops billing, which widens the gap, which triggers more holds. That is the death spiral on a subcontract of this size. The 60-day pay-when-paid with no outside date is the second-biggest risk: it is an open-ended interest-free loan from you to the owner.

1. Notice to Owner - the window has already closed. You began furnishing 70 days ago, and the Notice to Owner must be served within 45 days of first furnishing. At day 45 your direct lien rights against the owner's property expired. Accept that and work the remaining levers; do not let anyone tell you a late NTO can be cured.
2. Demand a written payment status from the GC: when the owner last paid, what is certified, what your billing status is. Get it in writing.
3. Ask for stored materials billing and a retainage reduction. Propose 5 percent at 50 percent completion and release at final. Put it in writing as a subcontract amendment.
4. Get a joint-check or direct-pay arrangement for the supplier's next release. It costs the GC nothing, keeps your schedule moving, and converts your supplier's leverage into the GC's problem.
5. File conditional lien waivers only - conditional on actual receipt of funds - with every invoice. Never sign an unconditional waiver before the check clears.
6. Use 2/10 net 30 selectively. The discount is worth roughly 36 percent annualized, but do not burn the line of credit to capture 2 percent and then miss payroll.
7. Negotiate an outside date on pay-when-paid, for example payment in any event within 90 days of a clean billing. That single clause is worth more than the retainage.

• Serve the Notice to Owner within 45 days of first furnishing, every job, private or public, whether or not you think you need it. Calendar the 90-day deadline to record a claim of lien from last furnishing at the same time.
• Bill stored materials with a signed inventory and dated photographs, and require the GC to inspect and acknowledge them.
• Negotiate retainage down: 10 percent to 50 percent completion, 5 percent to substantial completion of your scope, zero at final with punch complete.
• Never accept open-ended pay-when-paid. Require an outside date.
• Qualify the GC before you sign: payment history, the owner's financing commitment, and on private work consider requiring a payment bond.
• Run a 60-day rolling cash forecast updated every Friday. Know your gap before your supplier does.
• Keep the line of credit as a buffer, not as working capital. A LOC that funds operations is a slow bankruptcy with interest.