By Patrick Hogan, handle.com
Small subcontractors face a unique challenge in large commercial construction projects—big opportunities come with big risks. Long payment cycles, retainage withholding, and contract terms designed to protect general contractors and developers can make cash flow unpredictable.
Without a solid strategy for managing payments, small businesses can quickly find themselves struggling to cover payroll, materials, and other expenses. The key to survival isn’t just winning more work—it’s ensuring that payments come in reliably and on time.
The Big-Project Dilemma for Small Businesses
Working on a large commercial project means navigating complex payment structures that don’t always favor small subcontractors. Many projects have net 60, 90, or even 120-day payment terms, making it difficult for smaller businesses to keep operations running smoothly. Retainage—where 5-10% of each invoice is withheld until project completion—further squeezes cash flow. Additionally, pay-when-paid clauses shift the risk of non-payment onto subcontractors, leaving them in limbo if the GC hasn’t been paid. These challenges make it critical for small subcontractors to take a proactive approach to protecting their payments.
Once a contract is signed, subcontractors have little leverage to renegotiate terms, so due diligence beforehand is crucial. Reviewing the GC’s payment history and reputation can provide insight into potential risks. If a GC has a track record of delaying payments, subcontractors should negotiate stricter payment schedules or ensure lien rights are firmly in place. Too often, small businesses take on large projects without fully considering how extended payment terms will impact their cash flow, leading to financial strain that could have been avoided with better planning.
Payment Protection 101: What Small Subs Must Get Right
Contract terms set the tone for payment security, and small businesses can’t afford to overlook the details. Pay-when-paid clauses may be unavoidable in commercial projects, but understanding how they work ensures subcontractors aren’t caught off guard. Change order policies should also be clearly defined—many subs lose money on unpaid extra work simply because they didn’t follow the right approval process. Negotiating retainage terms can also provide relief; some owners allow phased retainage releases rather than withholding the full amount until project completion.
Lien rights are the strongest tool subcontractors have to ensure payment—but only if they follow the rules. Many states require preliminary notices before a subcontractor can even file a mechanics lien, and missing these deadlines can mean losing lien rights entirely. Owners and GCs often delay payments, hoping subs will either miss the deadline or hesitate to file a lien. A structured lien and notice management process ensures that small businesses maintain their right to pursue payment if delays occur.
Tracking lien deadlines manually leaves too much room for error, especially when juggling multiple projects. Many small subcontractors assume they won’t need to file a lien and fail to send notices on time. By the time a payment issue arises, their options are limited. Using a lien management platform ensures deadlines are met, lien waivers are issued correctly, and all compliance documents are in order. Subcontractors who treat lien rights as a routine part of business—not a last resort—are far less likely to suffer major payment delays.
Technology can make payment compliance easier, especially for small businesses with limited administrative support. Automated lien notice tracking, digital waiver management, and payment monitoring tools can help subcontractors avoid common compliance mistakes. A system that tracks deadlines, manages paperwork, and provides visibility into payment statuses reduces administrative burden and minimizes the risk of non-payment. Large contractors have entire teams dedicated to compliance—small businesses need to level the playing field with smart tools.
Even beyond lien rights, documentation plays a major role in getting paid. Small subcontractors that rely on verbal agreements, incomplete invoices, or disorganized recordkeeping are at a higher risk of disputes. Every invoice should reference the contract, include all necessary backup documentation, and be submitted according to the GC’s specified process. Some subcontractors delay sending invoices because they’re waiting on internal approvals or documentation—this only extends the payment timeline further. The sooner invoices are sent, the sooner the payment clock starts.
Balancing Risk and Growth: Smart Credit Strategies for Small Subs
Growth should be strategic, not reckless, and small subcontractors need to balance opportunity with financial stability. Before taking on a large contract, subcontractors should evaluate the GC’s payment history, review their creditworthiness, and understand how they typically handle subcontractor payments. If a GC has a reputation for slow payments or withholding change orders, it may be better to negotiate more favorable terms or walk away.
Negotiating payment terms is just as important as negotiating contract scope. If possible, small subcontractors should push for partial upfront payments or more frequent progress payments to prevent cash flow bottlenecks. GCs often request extended payment terms to manage their own finances, but small businesses must assess whether the risk is worth it. Extending credit to a slow-paying GC without clear protections in place can leave a subcontractor in a dangerous financial position.
Subcontractors should also be mindful of overextending themselves. Rapid growth is appealing, but taking on too many projects with slow-paying GCs can create financial strain. Some small businesses take on additional debt to cover cash flow gaps, only to find themselves in a cycle of chasing payments while managing rising interest costs. A well-structured credit policy can help prevent this by ensuring that every project meets specific financial criteria before moving forward.
Competing and Growing
For small subcontractors, the biggest risk in working on large commercial projects isn’t the complexity of the work—it’s the uncertainty of getting paid.
Long payment cycles, retainage, and contract loopholes put financial strain on businesses that don’t have the reserves to absorb delays. By understanding contract terms, securing lien rights, and using compliance tools to track payments, small businesses can protect their cash flow and reduce their risk. The subcontractors who succeed in a big-project world aren’t necessarily the ones who take on the most work—they’re the ones who make sure they get paid for every job they take.
About the Author:
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors and material suppliers with lien management and payment compliance. The biggest names in construction use Handle on a daily basis to save time and money while improving efficiency.
