Payment terms, deposits and staged payments
Last reviewed 12 September 2026
Profitable businesses go under because the money arrives after it is needed. Payment structure is not admin, it is the difference between a good job and a good job you had to fund.
On a job of any size you buy the materials before you get paid for them. The only question is how long you carry that cost, and the answer is decided on the quotation, not at the end.
Deposits: what they are for
A deposit should be tied to something real, normally the materials you have to buy up front and any bespoke items you cannot return. Say what it covers on the quotation. A deposit described as "25 per cent on acceptance" invites the question of why, while "an initial payment of 1,400 pounds to cover the ordered units and worktop, which are made to order and non-returnable" answers it before it is asked.
Two cautions for domestic work. Ask for a proportionate amount rather than a large sum well before the work starts, and never take a deposit that would leave you unable to refund it if the customer exercised a cancellation right. On off-premises consumer contracts that 14-day right exists unless the customer has expressly asked in writing for work to start sooner.
Stage payments that actually protect you
Tie each stage to a visible, verifiable event rather than to a date. Dates slip for reasons that are nobody's fault, and a payment tied to a date that slipped is a payment you have to argue for.
- On acceptance, for materials ordered.
- On completion of first fix or of the structural stage.
- On completion of second fix, or on the room being usable.
- On practical completion, with a final balance.
The principle is simple: each stage payment should cover the costs you are about to incur, not the ones you have already absorbed. If your stages leave you funding a month of labour and materials, the stages are wrong.
How long the customer has to pay
State the period in days on the quotation and repeat it on the invoice. Seven days on domestic work and 14 to 30 days on commercial work are normal. Silence does not mean immediate: it means an argument.
What the Construction Act gives you on commercial work
The Housing Grants, Construction and Regeneration Act 1996, as amended in 2009, applies to most construction contracts in the United Kingdom and gives you rights you cannot be contracted out of. It does not apply to a contract with a residential occupier for work on their own home, which is why domestic work relies on your own terms instead.
- A right to be paid in instalments on any contract lasting 45 days or more.
- An adequate mechanism for deciding what is due and when, with a payment notice from the payer, or your own default notice if they fail to issue one.
- A pay less notice requirement: to pay less than the notified sum, the payer must serve a valid notice before the final date for payment, saying how much it will pay and why. No valid notice means the notified sum falls due in full.
- A right to suspend performance for non-payment, after giving seven days' written notice, with your costs and time recoverable.
- A right to refer a dispute to adjudication at any time, with a decision normally in 28 days.
The pay less notice regime is the most useful of these and the least used by small firms. If the money is not paid and no valid pay less notice was served in time, the sum in the payment application becomes payable, and adjudication on that point is quick.
Late payment interest on business work
Between businesses, the Late Payment of Commercial Debts (Interest) Act 1998 entitles you to statutory interest at 8 per cent above the Bank of England base rate, plus fixed compensation of 40 pounds on debts under 1,000 pounds, 70 pounds between 1,000 and 9,999.99 pounds, and 100 pounds on 10,000 pounds and over. You can also recover reasonable costs of pursuing the debt beyond that fixed sum.
Saying on the quotation that you will apply it is more effective than applying it silently at the end. Most late payers pay on time when the interest is visible in advance.
Retention
On commercial work a percentage, commonly 3 to 5 per cent, may be held back until the defects period ends. If you accept retention, price it: it is your money funding somebody else's risk for a year. Write down the release dates and diarise them, because unclaimed retention is one of the most common forms of money simply left behind in this industry.
Make paying easy
Put your bank details on the quotation as well as the invoice, offer a payment method the customer already uses, and send the invoice the day the stage completes rather than at the end of the month. Every day of delay in issuing is a day added to getting paid, and it is the one delay entirely within your control.
More guides
- How to price a building job so it still makes money
- Quote or estimate: the difference that decides who pays for the overrun
- What a quote must include to be safe in the UK
- How to work out your true hourly rate
- Exclusions and assumptions: the two lists that protect your price
- VAT for UK trades, and the domestic reverse charge
- CIS deductions explained, for subcontractors and contractors
- Variations and extras: how to get paid for work outside the quote
- Why quotes get rejected, and eight fixes that win more of them
- Domestic versus commercial: what changes in the way you quote
- Chasing late payment without losing the customer
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This guide is general information for UK trades, written by the BidReady team. It is not legal, tax or financial advice. Rules change and individual circumstances differ, so take professional advice before acting on anything that matters.