Contracts either protect you or leave you exposed.

Karalynn Cromeens reviews payment terms in residential construction contracts, focusing on getting paid and handling nonpayment. She covers milestone payments, invoicing, contract clauses, lien rights, state regulations, credit card disputes, and insurance-related payment issues. To prevent problems, contractors must pause work when payments lapse and use clear contract language.

Key Takeaways

1. Setting clear payment terms is essential for protecting cash flow and smooth business operations. A contract should explicitly state how, when, and under what conditions payments are made—and what happens if they're delayed or withheld.

2. Contractors should implement a reliable billing process, such as milestone or percentage-based payments, and always clearly communicate these terms with clients. Relying on hope or goodwill isn't enough—written procedures minimize misunderstandings and ensure timely payment.

3. Your contract should provide you with leverage if payments aren't made, including the right to stop work and shift project schedules or even cancel the contract. These clauses protect contractors from unpaid work and project delays.

4. Knowing and protecting your lien rights gives you a legal tool to secure payment when clients refuse to pay. Lien laws vary by state and must be strictly followed, but properly executed liens can forcibly secure payment by encumbering the property you've improved.

5. Whether dealing with credit card payments (with risks like chargebacks and fraud) or insurance-related non-payments where clients keep the funds, a solid contract and clear documentation are vital. Always obtain authorizations for credit payments, and stop work promptly if insurance payment issues arise.

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