Progress payments are payments provided progressively over the course of a project in direct relation to how much work has been completed.
Progress payments are payments made progressively throughout a project, in direct relation to the amount of work completed. They can also be known as progressive payments. This payment method can be seen in construction activities, where it can be used to compensate contractors, subcontractors, and others on a job. It is also seen with some government contracts.
Progressive payments can be used to compensate contractors.
One advantage of using progressive payments is that it reduces the need for working capital because people do not need to present a large sum of cash upfront to pay for a project. They also don’t have to struggle to make a big payment at the end of the project. Instead, they can space out payments as the work is completed. This also allows people to be more flexible with the working capital they have, because they don’t have to put it all in one place.
Another advantage of compensating people in the form of progress payments is that they provide opportunities to monitor work. Pay for work in segments encourages people to stick to established work schedules and also allows the person paying the work to stop a project if it is not progressing as planned or if there are quality concerns. The payments also fulfill any obligations up to that point in the job, which makes firing workers less complicated.
When people use progressive payments to pay for general employment contracts, they must be careful to obtain collateral releases with each payment. Releases indicate that subcontractors and suppliers have been paid in full up to that point and that they cannot take action against the property owner for late payment. If release of collateral is not obtained, the property owner will have no way of knowing whether the suppliers and subcontractors have been paid or not, and this could become an issue later on.
If payment for a project is handled in the form of payments for progress, this must be structured in the contract. The contract should clearly outline the responsibilities and expectations of all parties involved to reduce the risk of disputes as the project progresses. Contract review by a lawyer who is familiar with these types of projects can be highly recommended to ensure that any gaps or glaring errors are addressed before the contract is finalized.