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What Are Progress Payments?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 06 July 2014
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Progress payments are payments which are provided progressively over the course of a project in direct relation to how much work has been completed. They may also be known as progressive payments. This method of payment can be seen in the building trades, where it may be used to compensate contractors, subcontractors, and other people on a job. It is also seen with some government contracts.

One advantage to using progress payments is that it reduces the need for working capital because people do not need to come up with a large sum of money up front to pay for a project. They also do not need to struggle to make a big payment at the end of the project. Instead, they can space payments out as the work is completed. This also allows people to be more flexible with the working capital they do have because they do not need to sink it all in one place.

Another advantage to compensating people in the form of progress payments is that they provide opportunities to monitor work. Paying for work in segments encourages people to stick to stated work schedules, and also allows the person doing the paying an opportunity to stop a project if it is not progressing as planned or there are concerns about quality. The payments also discharge any obligations up to that point in the work, which makes dismissal of workers less complicated.

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When people use progress payments to pay for general contracting work, they should be careful to obtain lien releases with each payment. The releases indicate that subcontractors and suppliers have been paid in full up to that point and that they cannot take action against the property owner for back pay. If lien releases are not obtained, the property owner has no way of knowing whether or not suppliers and subcontractors have been paid, and this could become a problem further on down the line.

If payment for a project is going to be handled in the form of progress payments, this should be structured into the contract. The contract should clearly outline the responsibilities and expectations of all parties involved to reduce the risk of disputes as the project proceeds. Having a lawyer who is familiar with these types of projects review the contract can be highly advisable to ensure that any loopholes or glaring errors are addressed before the contract is finalized.

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Discuss this Article

LisaLou
Post 6

@shell4life - I think one of the disadvantages of progress payment work is how easy it can be for dishonest people to take advantage of this method.

If you don't have the money to hire an attorney, it can really be a bad deal. Hopefully you don't have a lot of time and money invested in something before you realize you aren't going to ever get paid.

Even if you have a written contract, there are always people who are going to find ways to get out of it and totally ignore it.

When it comes to larger companies, it would be easier because they should have the means to hire lawyers to make sure they get their money.

julies
Post 5

I have two cousins who have their own business and build customized log homes. Other than hiring a few other workers from time to time, the majority of this work is done by the two of them.

The owners know up front this can take about a full year for them to complete as they are very particular about the work they do. It also depends on how large the home is.

They set up most of their contracts to be paid as progress payments. They wouldn't be able to survive if they had to wait until the homes were completely done to receive payment.

This works out nicely for everyone involved. The builders receive money along the way, and the owners can see how the work is progressing and know they are doing a good job.

wavy58
Post 4

I edit books for a living, and I receive progress payments from the authors. I think that this is the best system for both me and them.

Editing a book takes time, and the authors realize this. They know that I will need to get paid before the job is done, and I understand that they don't want to pay me everything before they have seen any work from me.

So, we divide the book up into quarters. As I get through editing one quarter, I receive one-fourth of the total payment.

I get regular paychecks this way, and the author gets time to come up with my money. He also gets the reassurance that he is getting what he pays for, because he can read over what I have done before handing over the money.

shell4life
Post 3

@Perdido – It is amazing how many people out there will take advantage of the progress payment method to scam workers. I do freelance graphic design work, and I have fallen victim to this before.

I thought that progress payments sounded like a good idea. When I designed entire catalogs, I understood why people would want to pay me as I got the work done bit by bit, because for all they knew, I could bail out on them with the money before getting the job done. It never occurred to me that they could do the same, even with progress payments, which I never saw.

A couple of people actually convinced me to continue with the project another week or so before getting payment. I finally caught on to the fact that they never intended to pay me, and I refused to do anything more until I got the money.

I simply cannot afford a lawyer to draw up a contract, so I have to use my own judgment. I won't let anyone talk me into working any longer than originally agreed upon without a payment, and that is just how I have to operate.

Oceana
Post 2

The company I work for used the progress payment method to get work done on our new building. We were still working in the old one as the new one was being constructed, and paying the contractor a little at a time allowed our company to come up with the money as we made it.

We didn't have a huge budget for things like this, but we knew that our savings would grow over the next few months. This is how we were able to afford the new building. If we had been forced to pay it all up front, then we would have had to remain in the old building forever.

We had a couple of new product lines come out during the time of the construction, and the profit from these helped fund the project a little at a time. By the time it was all done, we had paid for all of it.

Perdido
Post 1

My husband works in construction, and his boss learned the hard way that he should always get lien releases. The person they were building a house for kept putting off payment, saying that he would have the money the following week, and the workers were getting antsy.

His boss thought that he could pay my husband and the other workers once a month, because that's what the person they were building for had promised. After the workers had gone more than two months without payment, the boss decided they should stop working until they received money.

It was a messy situation, because many of the workers blamed the boss for not being able to secure the money. However, the only thing he was at fault for was not negotiating a good contract in the first place.

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