Your Cash Flow Problem Isn't Collections — It's Your Draw Schedule

In October 2008, my receivables went from 45 days to 110 days in about six weeks. I didn't have bad customers. I had a bad structure. Took me too long to see it, and it cost me four guys I'd hired personally.

Two kinds of cash flow problems exist. One is a customer problem. The other is a design problem — you built a shop where money goes out before it comes in, and the gap almost kills you.

Most shops have the second kind and think they have the first.

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You're Fighting the Wrong Battle

The standard complaint: customers take forever to pay, net-30 means net-60, the builder keeps saying next Friday. All real. None of it is the root problem.

You funded the job first.

Materials bought. Guys on the clock. Truck note, insurance, fuel — all of it out the door before you collected anything. Now you're calling a homeowner who already has a working boiler about a balance that's two weeks overdue, hoping she doesn't put you off again because there's no checkpoint in your contract that makes payment the next logical step.

That's not a collections problem. That's a structure problem you built yourself.

The difference between a cash flow problem and a cash flow structure problem: one is the customer's fault. The other is yours.

When I fired Whitman Builders in 2011, I'd already let the structure of every one of those deals make collection nearly impossible. Invoices were correct. Work was done. Contract said 30 days. Didn't matter. Once you've finished four jobs for a builder who's behind on all four, the question isn't when he pays. It's whether he pays. I'd handed him that position by putting all the money at the end.

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How "Invoice at Completion" Works Against You

When you quote lump-sum and invoice at the end, you're doing to yourself what GCs do to you.

The reason builder receivables are a bloodbath: the GC takes your completed work, pays you on his schedule, and your only real recourse is a mechanics lien you probably filed late. You hate that. You talk about it. Then you go home and write a proposal for a $14,000 repipe, win it, put three guys on it for five days, order materials up front, and invoice when the last connection is pressure-tested.

The labor's spent. The materials are in the wall. The homeowner has hot water. The invoice is in her inbox and she'll get to it when she gets to it, because nothing in your agreement pushes her to act before then. She didn't invent that dynamic. You handed it to her.

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What a Real Draw Schedule Looks Like

For residential installs, I run three draws. Deposit at signing. Mid-point at rough inspection or material delivery, whichever comes first. Balance at startup, before I leave the job.

On a $12,000 Navien install with a gas-line extension: $3,600 at contract signing. Another $3,600 when I pull the permit and rough materials hit the site, usually day one or two. The remaining $4,800 at startup, with the homeowner watching the unit fire and the pressure test pass.

Under invoice-at-completion, you're carrying the full material cost and all your labor for the duration of the job, chasing a $12,000 invoice while simultaneously buying materials for the next one. Under a draw structure, you've collected $7,200 before you've spent it all, and the final draw is due while you're still standing in the mechanical room.

Same job. Same work. Completely different cash position on day five.

If you can't cover 90 days of operations — payroll, truck notes, insurance, materials — from cash on hand with no new revenue, your draw schedule isn't an administrative preference. It's a survival tool. That's the lesson I took out of 2008. How long can you pay your guys with zero new work coming in? If the answer isn't 90 days, you don't have a business, you have a hostage situation.

For small commercial work I'd push that first draw to 40 percent. Jobs run longer, material commits are bigger, the carry risk is higher.

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Net-30 Terms Are a Problem You Created

Most shops asking how to get paid faster have never asked why they offered 30-day terms in the first place.

Residential customers didn't show up to your estimate with payment policies. You handed them net-30 because your proposal template had it printed at the bottom — probably lifted from a commercial subcontract template years ago and never questioned.

Commercial terms exist because commercial relationships have accounts payable departments and defined billing cycles. A homeowner in Shrewsbury doesn't have an AP department. She has a checking account and a phone. Tell her the deposit is due at signing and the final payment is due at startup, she'll write two checks. She's not going to fight you. She just needs to know the rules.

I've said this about flat-rate pricing books before: if you copy someone else's rate sheet instead of building your rate from your own cost of doing business, you don't own a business, you own a franchise of someone else's spreadsheet. Same logic here. Copy commercial payment terms for residential work and you're running a model that wasn't built for your truck notes or your materials float.

Day rates fall into the same category. If you can't price a job before you start it, you can't structure draws either — you have no milestones to draw against. The invoice-at-completion habit, the net-30 habit, the day-rate habit. All symptoms of the same thing: a shop that hasn't decided how money moves in.

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The Conversation With the Customer

The fear isn't the draw structure. The fear is saying it out loud and sounding like you need the money.

Here's what I say: "I order your materials before I start. I don't finance your job."

One sentence. Not defensive. Doesn't apologize. Frames the deposit as a supply chain fact, which it is.

Card-on-file works well for service work — diagnostics, maintenance, small repairs under $800. Clean, fast, no awkward deposit conversation on a one-hour call. For installs and multi-day jobs, card-on-file is a backup. Not a draw schedule. Don't confuse them.

One customer type will push back hard: the guy who immediately says the shop down the street doesn't ask for a deposit. My answer used to be to cave. Now it's: "That's fine — you should call them." If he signs with someone else over a deposit, I probably wasn't getting paid cleanly anyway.

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What You Do Monday Morning

Pull the next unsigned proposal off your desk. Before it goes out, rewrite the payment terms. Three draws — thirty to forty percent at signing, thirty percent at a defined mid-job milestone, balance at substantial completion. If it's a service call under a thousand dollars, card-on-file at dispatch. Write it plainly: "Payment Schedule: $X at contract signing. $X at rough-in inspection. $X at startup."

Don't touch jobs already in progress. Retrofitting a payment structure mid-job creates friction with no upside. Change the next one.

Then pull your bank balance. Divide it by your monthly operating nut — payroll, truck notes, insurance, average materials spend. If that number is less than three, your draw schedule just became a survival issue.

If you're on Jobber or Housecall Pro, update your proposal template. Twenty minutes. Next proposal that goes out carries the new terms automatically.

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FAQ

Won't asking for a deposit make me look desperate or untrustworthy?

No. It makes you look like you run a real business. The contractor who looks untrustworthy is the one calling at day 47 asking when he's getting paid on a completed job. Tie your deposit to material orders, hit your milestones, and the structure builds confidence.

What percentage deposit makes sense, and does it change by job type?

For installs and multi-day residential work, 30 to 40 percent at signing. For small commercial where material commits are bigger and jobs run longer, push toward 40. For routine service calls under $800, skip the deposit and put a card on file at dispatch. Your deposit should cover your actual material exposure before day one.

What if a GC contract has pay-when-paid language — does a draw schedule help?

Not much against that clause specifically. A draw schedule helps where you control the contract — residential owners, small commercial clients you're billing directly. Against pay-when-paid language, your tools are the mechanics lien and your willingness to walk. Know your state's lien deadline before you start work, not after you're owed $30,000. Look it up before you sign, not after.

I have jobs in progress with no deposit structure. Fix those or move on?

Move forward on new ones. Don't retrofit a draw structure mid-job. If you're deep into a big job with significant remaining work and no deposit collected, there may be a case for a progress billing tied to milestones — but frame it around the work completed, not your cash position. The clean fix is the next proposal sitting on your desk.

How do I handle the customer who says the competitor doesn't ask for a deposit?

Let him call them. A customer who opens a negotiation by citing your competitor's terms is showing you how the rest of the job is going to go. You didn't lose a customer. You lost a cash flow problem.

Is there a job size where a deposit isn't worth asking for?

Yes. I'd put the line around $800 to $1,000 for residential service. Below that, card-on-file at dispatch. The deposit conversation has a transaction cost — it's friction in the sale. On a $400 drain flush, not worth it. On a $4,000 expansion tank and PRV replacement, absolutely worth it. Pick a number and hold it. Flip-flopping on your own terms confuses people more than whatever the policy is.