Financing a customer’s project out of your own bank account is the fastest way for a busy business to run out of money.
TL;DR Never be more exposed than the customer. Tie every milestone to something objectively verifiable. Bill automatically on trigger, with notice. Deposit covers materials, final payment is small enough that nobody holds it hostage.
The exposure rule
At every point in a project, the customer should have paid for at least what you have delivered and spent.
The failure pattern. You order $8,000 of materials on a $20,000 job, having taken a $2,000 deposit. You are now $6,000 exposed to somebody you met three weeks ago.
Draw the exposure curve for your typical project. If it ever goes meaningfully negative, restructure the schedule.
A workable milestone structure
| Milestone | % | Trigger |
|---|---|---|
| Deposit | 25 to 30% | Contract signed |
| Materials | 25 to 30% | Materials ordered or delivered to site |
| Progress | 25 to 30% | A defined, visible stage complete |
| Completion | 15 to 20% | Sign-off |
Keep the final payment modest. A 40% balance gives a difficult customer enormous leverage over a snag list. 15% keeps them engaged without being a weapon.
Adjust by materials intensity. A job that is 70% materials needs a bigger, earlier materials milestone.
Triggers must be objective
This is where most schedules fail.
| Bad trigger | Good trigger |
|---|---|
| “When we are about halfway” | “On completion of first fix” |
| “After a few weeks” | “On delivery of materials to site” |
| “When the customer is happy” | “On passing inspection” |
| “At substantial completion” | “On completion of [defined list]” |
Write the trigger so a third party could tell whether it happened. If it needs interpretation, it will be interpreted differently by each side at the worst moment.
Automating it
Manual milestone invoicing gets forgotten in a busy week, which is exactly when cash flow matters.
The setup
- Build the schedule into the contract, with amounts and triggers.
- Enter milestones into your project or field service software at job creation.
- Mark the trigger complete when it happens, on site, on the tablet.
- The invoice fires automatically, or the card on file is charged.
- Receipt sent immediately.
Send a notification before the charge. A text 24 hours ahead.
Heads up: materials milestone of $5,400 goes through tomorrow as per the schedule. Materials arriving Thursday. Any questions, call me.
That message prevents almost every dispute and every chargeback. Surprise is what causes both.
Down payment versus final completion
The deposit covers your initial exposure, secures the slot, and confirms commitment. Non-refundable terms should be stated plainly, and in many jurisdictions there are consumer cancellation rights that override them for contracts signed in the home. Know your local rule.
The final payment should be small enough that withholding it is not worth a fight, and tied to a defined completion standard.
Define completion explicitly in the contract. “Completion means the work in the scope is finished and any snag list agreed within 5 days is addressed.” Without a definition, completion becomes whatever the customer decides it is.
Handling delays and holds
Projects stall. The contract should already say what happens.
Delays caused by you. Milestone waits. That is fair.
Delays caused by the customer. Access not available, decisions not made, their other trades not finished. Include a clause that milestones can be billed on schedule regardless, or that storage and remobilisation are chargeable. Otherwise you are financing their indecision.
Delays caused by supply chain. Bill the materials milestone when materials are ordered and paid for, not when they arrive. You have spent the money.
Suspension. Define what happens if a project pauses for more than 30 days: work already done is billed, remobilisation is chargeable, and pricing may be re-quoted.
Retainage, if it applies to you
Commercial work often withholds a percentage until final sign-off.
If you are subject to it, know your state’s retainage rules. Many US states cap the percentage and set deadlines for release. Price it into the job, because that money is not free to you while it is held.
On residential work, do not volunteer retainage. It is a commercial convention and offering it invites a hold you did not need to give.
What the schedule needs in writing
- Each milestone: amount, percentage, and objective trigger.
- Payment terms and method for each.
- Late payment terms, with an interest rate that is lawful in your jurisdiction.
- What happens on delay, by cause.
- Definition of completion.
- Change order process and how changes affect the schedule.
- Suspension and termination terms.
Measure your cash position
- Days sales outstanding, monthly.
- Peak exposure per project. Your worst moment, in dollars.
- Milestones billed on time versus late. Late billing is usually the real cash flow problem, not late paying.
- Percentage of projects where the final payment was disputed. High numbers mean your completion definition is too vague.
Draw the exposure curve for your current largest job. If there is a point where you have spent significantly more than you have collected, restructure the remaining milestones this week.
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