Contractor Payment Terms: Net 30 vs. Due on Completion

Here's a scenario every contractor has lived through: you finish a job on a Friday, hand the customer an invoice (use our invoice generator to make it professional), and then spend the next 45 days chasing payment. Meanwhile, your material supplier wants their money, your guys need their paychecks, and your truck payment is due.

Payment terms aren't just words on an invoice. They're the difference between a business that runs smoothly and one that's constantly scraping by. Let's break down the most common options and figure out which one fits your operation.

The Most Common Payment Terms for Contractors

Payment Term	When You Get Paid	Best For	Cash Flow Impact
Due on completion	Day of completion	Residential service	Excellent
Due on receipt	When invoice received	Small jobs, service calls	Very good
Net 15	15 days after invoice	Repeat commercial clients	Good
Net 30	30 days after invoice	Commercial/GC work	Moderate
Net 60	60 days after invoice	Government contracts	Poor
Progress billing	At milestones	Large projects ($10K+)	Good (if enforced)
50% deposit + balance	Half upfront, half at end	Mid-size residential	Very good

Due on Completion: The Gold Standard for Service Work

If you're doing residential service work — repairs, installations, maintenance — due on completion should be your default. Here's why:

• You collect the same day you work. No receivables to manage, no aging invoices to chase.
• The customer is most satisfied right after you finish. The longer you wait to invoice, the more they forget how grateful they were when you fixed their problem.
• It filters out bad customers. People who can't pay on completion often can't pay at all. Better to find that out before you start work, not 60 days later.

The key is setting expectations upfront. When you book the job, let them know: "Payment is due when the work is complete. We accept credit card, check, or bank transfer." No surprises.

Net 30: When You Have No Choice

Net 30 is the standard in commercial construction, and if you're doing work for general contractors, property management companies, or government entities, you'll probably have to accept it. That doesn't mean you have to like it.

The reality of Net 30:

• Net 30 usually means Net 45-60. Very few commercial clients actually pay in 30 days. Budget for 45.
• You're financing your customer's project. You paid for materials and labor weeks ago. They're using your money interest-free.
• It requires working capital. You need enough cash reserves to cover 1-2 months of expenses while waiting for payment.

How to Survive Net 30 Without Going Broke

If you're doing commercial work on Net 30 terms, here's how to protect yourself:

1. Negotiate a deposit. Even on Net 30 jobs, try to get 20-30% upfront for materials.
2. Bill frequently. On longer projects, submit invoices weekly or biweekly, not at the end.
3. Add late payment penalties. 1.5% per month (18% annually) is standard. Put it in the contract.
4. Offer early payment discounts. "2/10 Net 30" means they get 2% off if they pay within 10 days. Many corporate AP departments will take this because it's effectively a 36% annual return.
5. Know your lien rights. File preliminary notices on every commercial job. It's not aggressive — it's standard business practice.

For a deeper dive into keeping cash flowing, see our cash flow management guide for trade businesses.

Progress Billing: The Best of Both Worlds

For projects over $5,000, progress billing gives you steady cash flow without asking the customer to pay everything upfront. A typical structure:

• 30-50% deposit before work begins (covers materials and mobilization)
• 25-35% at rough-in or midpoint milestone
• Balance on completion

The beauty of progress billing is that you never have more than 25-35% of the job value at risk. If a customer stops paying, you stop working — and you've already been paid for most of what you've done.

What About Deposits?

Deposits are your best friend. They accomplish several things:

• Commitment filter. A customer who won't put down a deposit probably isn't serious.
• Material coverage. You shouldn't be buying $3,000 in materials on your dime for someone else's project.
• Cash flow stability. Deposits collected this week fund operations while you wait for last month's Net 30 invoices.

Check your state's contractor deposit laws. Some states cap deposits (California limits them to $1,000 or 10% of the contract, whichever is less). Others have no restrictions.

Enforcing Your Payment Terms

Having great payment terms means nothing if you don't enforce them. Here's a system that works:

1. Day 0: Invoice immediately upon completion (same day, not "when you get around to it")
2. Day 1: Confirm receipt of invoice via email or text
3. Day 15: Friendly reminder — "Just checking in on invoice #1234"
4. Day 30: Firm reminder — "Invoice #1234 is now past due"
5. Day 45: Final notice — "Payment is required within 7 days to avoid late fees and collection action"
6. Day 60+: Collections or small claims court

The biggest mistake? Letting it slide because you "don't want to be that guy." You did the work. You deserve to be paid. Being professional about collections isn't aggressive — it's responsible. For invoicing tools that make this easier, check out our FreshBooks vs QuickBooks comparison.

Picking the Right Terms for Your Business

There's no universal answer. The right payment terms depend on:

• Your trade. Service-heavy trades (plumbing, HVAC, electrical) can usually collect on completion. Project-heavy trades (remodeling, roofing) need progress billing.
• Your customer type. Homeowners can pay on completion. Commercial clients expect Net 30. Government expects Net 60.
• Your cash reserves. If you have 3+ months of operating expenses in the bank, you can afford to be flexible. If you're living job-to-job, insist on tighter terms.
• Your leverage. In a hot market with more work than you can handle, you set the terms. In a slow market, you may need to be more flexible.

Frequently asked questions

What does Net 30 mean for contractors?

Net 30 means the customer has 30 days from the invoice date to pay in full. You cover all costs upfront and wait up to a month — often longer — to get paid.

Is due on completion better than Net 30 for small contractors?

For most residential and small commercial contractors, due on completion is significantly better for cash flow. You collect the same day you finish.

How do I get customers to pay on time?

Set clear expectations upfront, invoice immediately, follow up consistently, and offer small early-payment discounts. For repeat offenders, require payment upfront.

Should contractors offer payment plans?

For larger jobs ($5,000+), progress payments at milestones work better than payment plans. For smaller jobs, collect on completion or upfront.