A deferred payment schedule is a financing arrangement in which payments for construction work are delayed and spread over a set period rather than being due immediately upon completion.
Why Use a Deferred Payment Schedule?
- Helps owners manage cash flow by deferring large expenses.
- Enables contractors to secure contracts with flexible payment terms.
- Can be beneficial when financing is structured around project milestones.
Potential Risks
- Contractors may experience delayed cash flow, affecting their ability to pay subcontractors and suppliers.
- Interest or fees may apply, increasing overall project costs.
Related Terms: Pay-When-Paid Clause, Retainage, Construction Loans, Progress Payments
FAQs
How does a deferred payment schedule impact contractors?
A: It can create cash flow challenges, so contractors should carefully negotiate terms to ensure they can cover their costs.
Are deferred payment schedules common in construction?
A: Yes, especially for large-scale projects where owners need to manage financial resources over time.