How to Pay Subcontractors Before You Get Paid

A subcontractor who has worked for you for six years asks, politely, when he is going to be paid. You know the answer and you would rather not say it out loud, because it depends on a valuation being certified by somebody you have never met.

This is the ordinary shape of construction. You pay for labour, plant and materials as the work happens, week by week. You get paid after an application for payment, after a valuation, after certification, and then after payment terms that may run to sixty days. On top of that, a proportion is held back as retention, sometimes for a year after practical completion.

You are funding the main contractor’s payment terms out of your own bank account, and you are doing it with other people’s wages.

Why it gets worse when the work goes well

The uncomfortable part is that the gap widens when you succeed. A larger contract means more subcontractors, more materials and more weeks of paying out before the first certified payment arrives.

Growth in construction consumes cash before it produces any, which is why the businesses that fail in this sector are so often the ones with a full order book. It is not a failure of trading. It is a failure of timing, and it is structural to the way the industry pays.

In the year to March 2026 there were 3,827 construction insolvencies in England and Wales, around 16% of all company failures. Construction is roughly a tenth of the economy and a sixth of the insolvencies, and the payment structure is a large part of the reason.

What contractors usually try

• Push the terms down the chain. Pay the subcontractors when you are paid. It works, once. You tend to lose the good ones first, and the good ones are the reason you win the next job.
• Ask the bank. Overdrafts against a contract book are difficult to arrange and slow to change, and construction is a sector many lenders are cautious about.
• Take a loan. It brings money forward, but it adds a fixed monthly repayment to a business whose income arrives in irregular lumps. The repayment does not wait for certification.
• Put directors’ money in, again.
• Slow the programme down to match the cash. This is the one nobody admits to, and it costs the most, because delay costs you the next contract as well as this one.

The question that decides which is right

Has this money already been earned?

If you need money to take on work you have not yet started, that is capital you have not earned, and borrowing is the honest way to get it.

But if the work is done, valued and certified, and a solvent main contractor owes you the money, you are not short of money. You are short of it now. That has its own answer, and it does not involve borrowing.

What selective invoice finance does here

If the term is unfamiliar, the idea is simpler than the name. Rather than waiting for the main contractor, you draw most of the value of what you have already invoiced. Up to 80% of the approved value, released immediately once the invoice is approved. When the payment comes through, the facility clears itself.

Two features matter particularly in construction. Approval rests mainly on the creditworthiness of the business that owes the money, which in construction is often a substantial main contractor with a strong balance sheet. And selective means you choose which invoices to fund, so you can use it on one difficult contract without committing the rest of your work to a funder.

Your main contractor does not have to be told

One more point matters more in construction than almost anywhere else, and it is usually the one a subcontractor raises last. Whether the main contractor is told is decided case by case, according to what suits the job. On a confidential facility we do not approach them at all, not even to verify the invoice, which we verify from your own paperwork instead. There is no extra cost for that, and we will tell you which way we are proposing to do it before anything is signed.

The complications, said plainly

Construction is not like other sectors, and anybody who tells you invoice finance works here exactly as it works for a wholesaler has not funded much construction.

• An application for payment is not an invoice. Funding generally attaches to a certified sum or a raised invoice, not to an uncertified application, so the certification date still governs a great deal.
• Retentions are generally not fundable. The money held back stays held back.
• Contra charges and rights of set off complicate what is actually owed, and a funder will look closely at that.
• Many construction contracts restrict or prohibit the assignment of payments. Check the contract early rather than late.
• Some funders avoid the sector altogether, which is why terms vary so widely between one quote and the next.

We fund construction deliberately rather than reluctantly, and the reason is that the gap between doing the work and being paid for it is wider in this sector than almost any other. That gap is precisely what the facility is built for.

Where it is the wrong answer

• If the contract itself is loss making, funding it faster only brings the loss forward. Finance does not fix a bad price.
• If the payment is being withheld because of a dispute about the work, funding does not settle the dispute and will not usually be available against it.
• If the shortfall would exist even with every certificate paid on time, the problem is not timing, and we will say so.

What to check on the next contract

• The assignment clause. Whether you can assign payments at all, and on what terms.
• The retention percentage and the release dates, and what they do to your cash over the life of the job.
• The certification timetable, not just the payment terms. Sixty days from certification is not sixty days from the work.
• Whether your subcontractor terms and your main contract terms are even capable of lining up. If they are not, the difference is coming out of your own bank account.

Most contractors discover these things on the job rather than before it. The ones who look at the assignment clause before they sign tend to have far more room to move later.