Before you delay paying your subcontractors

1. The decision

The reader is deciding whether to delay or partially withhold payment to subcontractors, suppliers, or labour-hire partners while waiting for customer payment to settle.

2. What to verify first

1. The contracted payment terms with subcontractors. Many subcontractor agreements in AU and NZ specify 7, 14, or 21 day terms with interest accrual or termination rights on overdue amounts.
2. The Security of Payment / Construction Contracts Act exposure. In AU, state-based Security of Payment legislation provides subcontractors with rapid adjudication rights for unpaid amounts. In NZ, the Construction Contracts Act 2002 provides equivalent rapid remedy rights. Delayed payment activates these remedies on subcontractor election.
3. The customer's expected payment date. The realised timing gap on the corresponding customer invoice determines how long the delay would persist. If customer payment is itself uncertain, the delay extends indefinitely.
4. Subcontractor concentration. A small number of critical subcontractors carry relationship risk disproportionate to the dollar amount being delayed.
5. The subcontractor's own cash position. Subcontractors operating with thin cash reserves may be unable to absorb the delay, triggering their own non-payment cascade against their suppliers.
6. Whether retention amounts are in play. Standard retention practices (commonly 5% to 10% withheld until practical completion) are distinct from delayed progress payments. The decision in scope is delay on amounts otherwise due.

3. Hidden costs and structural risks

1. Relationship damage. Subcontractors who experience delayed payment commonly decline future work, price subsequent jobs higher to compensate for credit risk, or withdraw mid-project.
2. Security of Payment / Construction Contracts Act claims. Adjudication can produce binding payment orders within 10 to 20 business days, with statutory interest and limited grounds for resistance. The legal cost frequently exceeds the delayed amount.
3. Withdrawal of labour or services mid-project. Subcontractors withdrawing services can cause project delays, liquidated damages exposure to the main customer, and reputational damage that extends beyond the immediate transaction.
4. Non-payment cascade. Subcontractors who themselves cannot pay their suppliers create downstream insolvency risk that can return to the principal as project failure.
5. Statutory interest and penalty. Late-payment interest at statutory rates accrues from due date. Penalty interest provisions in subcontract agreements can be punitive.
6. Director liability under building and construction reforms. Recent AU state-level reforms have introduced personal liability for directors of head contractors that systemically delay subcontractor payments.
7. Insurance and bond exposure. Subcontractor performance bonds and insurance can be called against the principal if subcontractor failure is attributable to non-payment.

4. Alternatives in the financing category

The financing question is whether the customer-payment timing gap can be bridged so that subcontractors are paid on contracted terms:

• On-demand invoice finance, where the customer invoice is funded on issuance, providing cash to meet subcontractor payment obligations on contracted terms. Resolves the cash flow timing gap between subcontractor outflow and customer inflow.
• Selective invoice funding, where the specific invoice tied to the subcontractor work is funded.
• A working-capital facility sized to the subcontractor cycle, if the position is recurring.
• Renegotiated subcontractor terms (where agreed and fair), aligning subcontractor terms with customer terms. Requires subcontractor consent.
• Progress invoicing aligned to subcontractor milestones, smoothing the inflow-outflow mismatch at the contract level.

5. The funding-readiness check

Scoped to this decision, the business is funding-ready to bridge the gap so subcontractors are paid on contracted terms when:

1. The customer invoices tied to the subcontractor work are for completed and accepted B2B work.
2. The customer debtor is a creditworthy commercial entity.
3. The customer's standard payment terms are within 14 to 90 days.
4. The accounts receivable ledger sits in a supported accounting platform (Xero, MYOB, QuickBooks Online, Reckon).
5. The cash gap between subcontractor outflow and customer inflow is timing-driven, not structural at the contract margin.

Outcomes: ready (per-invoice funding bridges the gap so subcontractor terms can be met), not ready, structural (the project itself is unprofitable at the contracted price, and delayed subcontractor payment is masking a structural loss), or not ready, temporary (resolve the remediable factor first). See /standards/funding-readiness.

6. When this decision is the right one

There are limited situations in which delayed subcontractor payment is the right operational answer. The narrow case set:

• A specific subcontractor invoice is genuinely disputed (defective work, scope departure, incomplete deliverables) and dispute-resolution procedures are running.
• The contract provides for retention until practical completion and the retention provisions are being applied as agreed.
• A short, agreed extension has been negotiated with the subcontractor's consent, with interest or other compensation where appropriate.

Outside these narrow situations, delayed payment is a symptom of a financing constraint rather than a deliberate operational choice.

7. When this decision is not the right one

• The delay is to absorb a customer-payment timing gap on otherwise creditworthy work. Per-invoice funding addresses the gap directly and preserves the subcontractor relationship.
• The business operates in a Security of Payment / Construction Contracts Act jurisdiction. Delayed payment exposes the principal to rapid adjudication with binding orders and statutory interest.
• The subcontractor is critical to ongoing project delivery and withdrawal would cause cascading project failure.
• The delay would extend beyond the subcontractor's own cash-absorption capacity, triggering downstream insolvency risk.
• The delay is systemic across multiple subcontractors, indicating a structural cash-flow issue rather than a single-event timing gap.

8. Version and authority

v1.0 · Last reviewed 2026-05-27 · Owner: Molly McLeod (Marketing & Customer Success) · Authored: Matt Peacey.

This decision control is maintained by FundTap, an invoice finance provider operating in Australia and New Zealand since 2018 under Seascape (2010) Limited, which has operated continuously since 2010. The page is advisory; it does not constitute legal, construction, or financial advice and should be read alongside professional legal and accounting advice on the specific contractual position.

Authored by Matt Peacey, Founder and CEO of FundTap.