Before you start

Steps

1. Start the contract right

   Most payment problems start in the first two weeks. Before any work begins, settle these with the buyer, ideally at a kickoff meeting:

   • Who approves your invoices, and where invoices go
   • Your written notice to proceed and official start date
   • Insurance certificates the contract requires, sent to the right person
   • Any reports the contract requires, such as progress reports or payments to subcontractors, and when each is due
   • Who your contact is for questions and changes

   Put every date and deadline from the contract in your tracker the same day.

2. Know the Texas prompt payment rules

   Texas Government Code chapter 2251 requires Texas public entities to pay within 30 days after the latest of these dates: the goods arrive, the service is finished, or the invoice arrives. Some local governments whose boards meet once a month or less get 45 days. A vendor that receives payment must pay its subcontractors within 10 days.

   For private projects, Texas Property Code chapter 28 sets payment rules, including payments to subcontractors.

   1. Day 0The later of: goods or services received, or invoice received
   2. Within 30 daysThe public entity pays the prime
   3. Within 10 more daysThe prime pays its subcontractors

   For planning only. Uses the 30-day rule, and the last date assumes the prime is paid on the last allowed day. Some local governments get 45 days.

   Learn more: Texas Gov. Code ch. 2251 · Texas Property Code ch. 28

3. Know how to protect payment on public jobs

   You generally cannot file a lien on public property. On public construction projects, the payment bond protects subcontractors and suppliers, under Texas Government Code chapter 2253.

   Bond claims and lien claims have short, strict notice deadlines that start running when you furnish labor or materials, not when you get frustrated. Confirm your deadlines with an attorney at the start of every job, and put them on your calendar.

   Learn more: Texas Gov. Code ch. 2253

4. Invoice so nothing gets sent back

   An invoice that does not match the contract can be sent back, which delays your payment. Check each one against this list before you send it.

   Before you send it

   • Contract or purchase order number
   • Billing period and the work or items delivered, matching contract line items
   • Prices that match the contract or approved change orders
   • Required backup: timesheets, delivery tickets, lien waivers, or photos
   • Sent to the exact address or portal named in the contract
   • A copy saved with the date you sent it

5. Ask for payment status in writing

   If a payment is late, email the person who approves invoices and ask for the status and expected date. Keep it short and factual. If you are a subcontractor, ask the prime in writing whether its payment application including your work has been submitted and paid.

6. Get every change order approved in writing first

   Do not start extra work on a verbal OK. Unapproved work is the hardest money to collect. Get the signed change order, with price and schedule, before you begin.

7. Price the wait into your bid

   You pay workers and suppliers long before the buyer pays you, and retainage may hold part of every payment until the job closes. Use the estimate below to see how much cash a job ties up, and include the cost of carrying it in your price.

   Your costs per month on this job

   $

   Days from invoice to payment Total contract value

   $

   Retainage held

   %

   Cash you carry before the first payment arrives

   $50,000

   Held back as retainage until closeout

   $24,000

   A rough estimate: one month of work plus the wait for payment, assuming you invoice monthly. Your contract terms decide the real numbers.

   Learn more: Texas public works retainage rules (Gov. Code ch. 2252)

8. Line up financing before you need it

   Apply for credit while your books look strong, before a contract strains your cash.

   Business line of credit

   Borrow as you go, repay as you get paid. Set it up before you win.

   SBA-backed loans

   Banks and lenders offer SBA-guaranteed loans, including working capital lines tied to contracts.

   Factoring

   Cash now for your unpaid invoices, for a fee. Read the next step before you sign anything.

   Community lenders

   Community development lenders often work with smaller and newer businesses.

   Not sure where to start? The SBA’s Lender Match tool sends your request to lenders that work with small businesses, and they contact you.

   SBA Lender Match SBA loan programs

9. Know how factoring works before you sign

   Factoring means selling an unpaid invoice to a factoring company. It pays you part of the invoice now, collects from your customer, then sends you the rest minus its fee. It can carry you through a long wait on a public contract, but it costs more than most loans.

   Ask every factoring company these questions, and get the answers in writing:

   • How much of each invoice do you pay up front?
   • What is the fee, and does it grow the longer my customer takes to pay?
   • Is it recourse or non-recourse? With recourse, you pay the money back if your customer never pays.
   • Do I have to factor every invoice, or can I pick which ones?
   • Are there setup fees, monthly minimums, or a fee to end the agreement early?

   Turn the fee into a yearly rate before you compare it with a loan. A 3 percent fee on an invoice that pays in 30 days works out to about 36 percent a year.

   Payments on a federal contract can be assigned to a factoring company only under the federal Assignment of Claims Act, which requires written notice to the contracting officer. On state and local contracts, read what the contract says about assigning payments and ask the buyer before you sign. Your customer will usually be told to pay the factoring company directly.

   Learn more: Federal Assignment of Claims rules (FAR 32.8)

10. Build your bonding capacity

    On Texas public works contracts, the prime contractor must provide a performance bond when the contract is over $100,000 and a payment bond when it is over $25,000, or over $50,000 for a city. Many solicitations also ask for a bid bond. If you cannot get bonded, you cannot bid those jobs as a prime.

    A surety company decides how much it will bond you for, based on your financial statements and your track record. Find a surety bond agent before you need one, keep your books current, and ask what it would take to raise your limit. Larger bonds may call for financial statements prepared by a CPA.

    If you cannot get bonded through a regular surety, the SBA’s Surety Bond Guarantee program backs bonds for small businesses so a surety will issue them.

    Learn more: SBA Surety Bond Guarantee program · Texas bond requirements (Gov. Code ch. 2253)

Common snags

The agency says it never got your invoice

Send invoices to the address in the contract, keep the confirmation, and ask for written receipt.

Retainage has not been released after the job closed

Ask in writing what is needed for release, such as closeout documents or a final inspection, and send them the same week.

Material prices jumped after you bid

Check whether the contract allows price adjustment. If not, build a contingency into future bids and shorten quote validity periods.