What is a payment schedule?

Tie the money to work, not to the calendar

A schedule that pays on the first of each month rewards the passage of time. A schedule that pays on completion of a defined stage rewards progress, and it gives the paying party something to inspect before releasing funds. The worked example is a dental surgery fit out of one hundred and eighty four thousand eight hundred dollars including GST, paid across six milestones: ten per cent on signing, fifteen on design sign off with shop drawings issued, twenty on materials delivered to site, twenty on rough in complete across electrical, hydraulic and framing, twenty on joinery installed and painting complete, and fifteen on practical completion and handover. Each carries a target date, and the running balance falls to zero only when the handover pack changes hands. Nothing is payable on a date alone.

Say what evidence releases each payment

The commonest failure is a schedule that names the milestone and stops. Completion of rough in means one thing to the trade claiming it and another to the client paying, and the gap is where a fortnight goes. Write the evidence next to the amount: the signed shop drawing register with every sheet initialled, the delivery dockets for materials with the supplier's name, the inspection certificate for the electrical work, photographs of the finished joinery. Then say who accepts it and within how many days, and say what happens if nobody responds. A deemed acceptance window, where silence after a stated number of days counts as acceptance, protects the party doing the work without exposing the payer, provided the window is realistic.

Retention, and getting it back

Trade contracts commonly hold back a percentage of each payment, often five per cent, against defects appearing after handover. Half is typically released at practical completion and the remainder at the end of the defects liability period. The money is real and it is frequently forgotten, so the schedule should state the percentage, the cap, the two release dates and who has to do what to trigger each release. Where the amounts are significant, a bank guarantee in place of cash retention is worth asking for, since it keeps working capital in the contractor's business. Whatever the arrangement, put the release dates in a calendar the day the contract is signed, because nobody chases retention they have forgotten about.

Deposits, front loading and the balance of risk

Every schedule allocates risk. A large deposit protects the supplier against a client who disappears; small early payments protect the client against a supplier who does. The honest position sits between them and depends on what the early money actually funds. A ten per cent deposit that pays for materials ordered to measure is reasonable and easy to justify with a purchase order. A forty per cent deposit on a design job with no external costs is a financing arrangement dressed as a schedule, and a client is entitled to say so. Front loading also creates a practical problem late in the job: if the last payment is small, the supplier has little incentive to finish the snagging list quickly.

Where the schedule meets the law

In Australia, construction work in each state is covered by security of payment legislation that sets out how a payment claim is made, how long the other party has to respond with a payment schedule of their own, and what happens if they do not respond in time. The consequences of missing a deadline can be severe, including losing the right to dispute the amount. Anyone contracting for building work should check the requirements in the relevant state and align the contract's dates with them rather than inventing a private timetable. For ordinary commercial services the schedule is whatever the parties agree, subject to the general rules on unfair terms in standard form contracts. It is worth reading the state rules once, properly, before the first job rather than during a dispute on the fourth.

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