Pay a Sub Before the Customer Pays You (Decision Tree)

Why this matters

Pay every sub the day they finish and you become the bank, carrying the gap between money going out and money coming in. Pay too slowly and good subs stop taking your calls, or worse, an unpaid sub files a lien against your customer's property, which turns into your problem in front of your customer. Every "should I pay this sub now" decision is a balance between protecting your cash and protecting your bench and your customer relationship.

Start here: is the sub's work verified and complete?

This gate comes before any cash question. Never pay for work you have not inspected and accepted, no matter how flush you are or how much you like the sub. Paying for unverified work removes your only leverage to get problems fixed and can leave you paying twice. If the work is not verified, you are not at a payment decision yet, you are at an inspection. Once the work passes, continue.

What do your terms say?

Your agreement should already answer most of this.

• If you have a pay-when-paid term, one that lets you pay the sub a reasonable time after the customer pays you, you have room to wait without breaching anything. See the related reference on structuring these terms.
• If you promised the sub fast payment, honor it. A term you agreed to is a term you keep; renegotiate the next agreement, not this payment.

Is the customer payment normal-slow or at-risk?

Waiting is not one thing. Sort which kind you are in.

• Normal-slow: the customer is on ordinary net terms and pays reliably; the money is coming, it is just on a schedule.
• At-risk: the customer is disputing, going quiet, stretching well past terms, or showing signs they may not pay at all.

This distinction is decisive. If the customer payment is genuinely at risk, paying the sub in full early converts the customer's risk into your certain loss. You have handed out cash for money you may never collect.

Weigh cash, lien exposure, and the relationship

Three more factors shape the call.

• Your cash position. Can you carry this without threatening payroll or your reserve. Cash is the oxygen; do not spend it to be early.
• Lien exposure. A mechanic's lien is a legal claim an unpaid sub or supplier can place against the property they worked on. If your sub goes unpaid long enough, the lien lands on your customer's property and becomes your dispute. This pushes toward keeping subs current even when cash is tight.
• The relationship. A reliable sub you want on the next ten jobs earns more goodwill than a one-off. Paying a keeper promptly is an investment; paying a stranger early is just risk.

The decision

• Pay now. Work verified, cash allows, the sub is one you want to keep, and the customer risk is low. Being reliably prompt with good subs pays you back.
• Pay on your terms. You have a pay-when-paid term and the customer is normal-slow. Communicate the timeline to the sub plainly so the wait is expected, not a surprise.
• Partial or progress payment. A long job or a squeeze. Keep the sub whole enough to stay committed and cover their own costs without fronting the entire balance ahead of your collection.
• Hold. Work is not verified, or there is an open dispute over quality or scope. Do not release payment into an unresolved problem.

Protect yourself either way

• Get a lien waiver for what you pay. A lien waiver is the sub signing away their lien rights for the amount paid, so a payment cannot later become a lien. Exchange it at payment.
• Do not overpay ahead of completion. A sub fully paid before the job is done has no reason to return and fix anything.
• Document every payment, for what, and when, for tax reporting and for any dispute.

Recap

1. Verify the work first; never pay for unaccepted work.
2. Check your terms for pay-when-paid room.
3. Judge the customer payment: normal-slow or at-risk.
4. Weigh cash, lien exposure, and whether the sub is a keeper.
5. Pay now, pay on terms, pay partial, or hold; take a lien waiver whenever you pay.

References

• State mechanic's lien and prompt-payment statutes (vary by jurisdiction)
• Trade-standard lien-waiver exchange practice
• See related: Payment Terms That Keep You From Financing Your Subs; Cash vs Profit: Why They're Different