Construction materials suppliers face significant cash flow challenges in an industry where extended payment cycles are the norm. With many construction firms experiencing payment delays that can extend 60-90 days or more, suppliers must balance the competitive need to extend credit against maintaining their own financial stability.
Offering net payment terms has become a competitive necessity in the construction supply industry. For suppliers ready to implement a strategic approach to net terms while protecting cash flow, Resolve's B2B net terms management platform can advance up to 100% of invoice value within 24 hours while your customers get the 30-90 day terms they need.
Key Takeaways
- Construction firms often experience extended payment cycles, with many projects involving 60-90 day payment terms
- Offering net payment terms has become standard competitive practice in construction supply
- Many construction companies do not charge late fees despite extended payment terms, creating cash flow challenges
- Some construction projects—particularly those with large owners or general contractors—impose Net 60-90 terms on suppliers
- Net terms can drive sales growth and customer loyalty but require robust credit assessment and cash flow management
- Payment terms in construction remain extended compared to pre-pandemic levels, affecting supplier expectations
- Technology solutions like automated credit checks and invoice financing can bridge the gap between extended terms and immediate cash needs
What Are Net 30, 60, and 90 Payment Terms in Construction Supply?
Net payment terms represent deferred payment agreements that specify the number of days a customer has to pay after receiving an invoice. Net 30 means payment is due within 30 days, Net 60 allows 60 days, and Net 90 extends to 90 days. These terms act as a grace period before the payment deadline and are standard practice in B2B transactions.
Net 30 vs Net 60 vs Net 90 Differences
The construction industry's unique project-based nature makes payment terms more complex than simple invoice dating. Key differences include:
- Net 30: Standard for smaller projects, materials-only orders, or established relationships with reliable payment history
- Net 60: Common for mid-sized projects, custom orders, or new customer relationships requiring additional trust-building
- Net 90: May appear on some large private commercial projects. Federal contracts generally target payment within 30 days under the Prompt Payment Act
In construction specifically, payment terms are often tied to project milestones rather than standard invoice dates due to the project-based nature of construction work. This creates additional complexity for materials suppliers who must deliver products upfront but wait for project completion or milestone achievement before receiving payment.
Common Payment Terms Examples
Beyond standard net terms, construction suppliers encounter several payment structures:
- Pay-When-Paid: Payment to subcontractors and suppliers occurs only after the general contractor receives payment from the project owner. Enforceability varies by state; "pay-when-paid" typically affects timing, while "pay-if-paid" provisions are restricted or unenforceable in many states
- Retainage: Commonly 5-10% of each payment is held back until project completion to ensure quality and completion, subject to contract and state/public project rules
- Progress Billing: Payments made at specific project completion percentages (25%, 50%, 75%, 100%)
- Net 15: Shorter terms for smaller orders, new customers, or suppliers with tight cash flow requirements
Net 30 is most common in B2B transactions, with Net 60 and Net 90 used in certain industries where project timelines and cash flow cycles require extended terms.
Why Construction Suppliers Need Net Payment Terms
The construction industry's structure creates unique challenges that make net payment terms not just beneficial but often necessary for competitive survival. Construction companies face more cash flow challenges than almost any other trade, creating a ripple effect throughout the supply chain.
Building Contractor Relationships
Contractors and construction firms operate with extended payment cycles as standard practice. When suppliers refuse to offer net terms, they immediately disqualify themselves from many bidding opportunities. Companies offering favorable payment terms are often chosen over competitors, particularly when working with large companies that have lengthy payment processes.
Net terms demonstrate flexibility and understanding of client needs, making customers more likely to continue business relationships and recommend services to others. This relationship-building aspect becomes crucial in an industry where word-of-mouth and reputation drive significant business.
Managing Cash Flow Cycles
The construction industry faces unique challenges including cost overruns, delayed payments, and the need for substantial upfront capital investments in materials and equipment before receiving payment. Many construction companies do not offer early payment discounts, further complicating cash flow management for suppliers.
For materials suppliers, this creates a difficult balancing act: extend credit to win business but risk cash flow strain, or maintain strict payment terms and lose competitive opportunities. The solution lies in strategic net terms management that protects supplier cash flow while meeting customer needs.
Setting Up Net 15 and Net 30 Payment Terms for Building Materials
Implementing net payment terms requires careful planning and systematic processes to minimize risk while maximizing opportunity.
Credit Application Process
Before extending any credit terms, establish a formal credit application process that includes:
- Business registration and licensing verification
- Trade references from other suppliers
- Bank references and financial statements
- Personal guarantees for smaller businesses
- Business credit reports and payment history
For suppliers looking to streamline this process, Resolve provides business credit checks with results typically delivered within 24 hours. This eliminates weeks of manual verification while providing deeper insights than traditional credit bureaus.
Determining Credit Limits
Credit limits should be based on multiple factors:
- Customer's annual purchase volume potential
- Payment history with other suppliers
- Business size and financial stability
- Industry reputation and references
- Risk tolerance of your business
Start with conservative limits for new customers and increase based on payment performance. Consider industry standards—construction payment terms typically range from Net 30 to Pay-on-Pay structures, so your terms should align with market expectations while protecting your cash flow.
Finding Wholesale Building Supplies Near Me with Net Terms
Local sourcing remains crucial in construction due to delivery logistics, material handling requirements, and relationship-based business practices.
Evaluating Local Suppliers
When seeking local suppliers offering net terms, consider:
- Delivery capabilities: Radius, frequency, and minimum order requirements
- Inventory depth: Ability to fulfill large or specialty orders quickly
- Credit flexibility: Willingness to work with your specific payment timeline needs
- Relationship quality: Responsiveness, problem-solving ability, and communication
- Regional expertise: Understanding of local building codes, materials, and project types
Negotiating Terms with Vendors
Effective negotiation with suppliers should focus on mutual benefit:
- Offer volume commitments in exchange for favorable terms
- Propose shorter terms for smaller orders and longer terms for larger commitments
- Discuss early payment discounts if you can maintain tight cash flow
- Consider partial upfront payments to reduce supplier risk
- Establish clear communication protocols for order changes or delays
Common Construction Materials List for Net Terms Purchasing
Certain materials are more commonly purchased on net terms due to their high cost, bulk nature, or project-critical importance.
High-Volume Materials
Materials frequently purchased on net terms include:
- Lumber and dimensional wood products: High volume, price volatility, project essential
- Concrete and cement products: Bulk delivery, project timeline dependent
- Steel beams and structural components: High cost, custom specifications
- Drywall and interior finishing materials: Large quantities, multiple delivery phases
- Roofing materials: Weather-dependent installation, high upfront cost
Specialty Items and Equipment
Specialty purchases that commonly use net terms:
- HVAC equipment: High cost, technical specifications, installation complexity
- Electrical components and panels: Safety critical, code compliance requirements
- Plumbing supplies and fixtures: Brand-specific, warranty considerations
- Insulation and weatherproofing: Energy efficiency requirements, building code compliance
- Fasteners and hardware: Volume purchases, multiple product categories
Managing Accounts Receivable for Construction Suppliers
Effective accounts receivable management is critical when operating with extended payment terms. The construction industry's payment delays create significant challenges for supplier cash flow management.
Automating Invoice Management
Manual AR processes become overwhelming with extended payment terms. Essential automation includes:
- Automated invoice generation: Triggered by delivery confirmation or milestone completion
- Payment reminder workflows: Scheduled communications at 7, 15, and 30 days before due date
- Aging report generation: Weekly tracking of outstanding invoices by customer and age
- Payment portal integration: Self-service options for customers to view and pay invoices
- QuickBooks synchronization: Automatic booking of payments and reconciliation
Resolve's AI-powered accounts receivable automation platform automates the entire net terms workflow from invoice to payment, helping to reduce days sales outstanding (DSO) and accelerate cash flow through intelligent payment reminders and collections management.
Reducing Days Sales Outstanding
Strategies to minimize DSO in construction supply:
- Implement early payment discounts (2/10 Net 30 is a common B2B discount structure, though adoption in construction is more limited)
- Charge late fees consistently to improve payment behavior
- Require partial upfront payments for large orders
- Use milestone billing for extended projects
- Maintain regular communication with accounts receivable
Risk Management Strategies for Extended Payment Terms
Extended payment terms increase credit risk, requiring proactive risk management strategies.
Mitigating Payment Default Risk
Key risk mitigation approaches include:
- Credit insurance: Protects against customer insolvency or non-payment
- Mechanic's liens: All U.S. states and D.C. provide mechanic's lien rights, though deadlines, notice, and scope vary by jurisdiction
- Personal guarantees: Additional security for smaller contractor businesses
- Non-recourse financing: Third-party assumes payment risk for approved invoices
- Regular credit reassessment: Quarterly review of customer financial health
Resolve offers non-recourse financing starting at competitive rates for 30-day terms with up to 100% advance, meaning what you get is always yours to keep. This eliminates the risk of payment default while providing immediate cash flow.
When to Require Deposits
Deposits should be required for:
- New customers without established payment history
- Orders exceeding established credit limits
- Custom or non-returnable materials
- Projects with known financial or timeline risks
- Customers with recent payment delays or financial difficulties
Digital Payment Solutions for Construction Material Suppliers
Technology solutions can significantly streamline payment processes and improve cash flow management.
Accepting Multiple Payment Methods
A comprehensive payment portal should accept:
- ACH transfers: Low-cost, reliable electronic payments
- Wire transfers: For large, time-sensitive payments
- Credit cards: Convenient but higher fee option (if surcharging, comply with card network rules and applicable state laws regarding caps and disclosures)
- Checks: Still common in construction despite digital alternatives
- Mobile payments: Growing adoption for smaller transactions
Resolve's B2B payments platform provides a branded portal offering ACH, credit card, wire, or check with QuickBooks auto-bookkeeping, ensuring all transactions are automatically recorded and reconciled.
Integration with Accounting Software
Essential integration capabilities include:
- Automatic invoice creation and synchronization
- Real-time payment recording and reconciliation
- Customer credit limit tracking and alerts
- Financial reporting and cash flow forecasting
- Tax calculation and compliance support
Scaling Your Construction Supply Business with Net Terms
Strategic use of net terms can drive significant business growth when implemented effectively.
Increasing Order Sizes
Net terms enable customers to purchase more than they could with immediate payment requirements. Businesses offering net terms can drive more sales than those requiring immediate payment because they can sell to clients with cash flow challenges, using trade credit as a competitive advantage.
Expanding Customer Base
Net terms open opportunities with:
- Large commercial contractors with extended payment cycles
- Government and institutional projects requiring specific terms
- New businesses building their credit and cash flow
- Seasonal businesses with cyclical revenue patterns
- Growth-stage companies with strong potential but limited working capital
Resolve's Net Terms for Ecommerce solution provides buy now pay later options that can increase sales volume and customer retention with instant approvals up to $25,000, enabling suppliers to safely extend credit to more customers.
Compliance and Legal Considerations for Payment Terms
Proper legal structure protects both suppliers and customers in net terms arrangements.
Creating Enforceable Terms
Essential elements for enforceable payment terms:
- Written agreements: Clear terms specified in contracts or terms of sale
- Specific due dates: Exact payment deadlines rather than vague timeframes
- Late fee structures: Clearly defined penalties for overdue payments
- Interest charges: Legal rates for extended non-payment periods
- Dispute resolution: Process for handling quality or delivery disputes
State-Specific Requirements
Construction payment terms are subject to various state regulations:
- Mechanic's lien rights: Vary significantly by state in terms of filing requirements and timeframes
- Interest rate limits: Maximum allowable interest on overdue accounts
- Prompt payment laws: Some states mandate specific payment timeframes for public projects
- Licensing requirements: Business licenses and contractor registration requirements
- UCC filing requirements: For secured transactions and credit arrangements
Frequently Asked Questions
What's the difference between net 30, net 60, and net 90 payment terms?
Net payment terms specify when payment is due after invoicing. Net 30 means 30 days, Net 60 allows 60 days, and Net 90 extends to 90 days. In construction, these terms are often tied to project milestones rather than simple invoice dates.
How do construction suppliers qualify customers for net terms?
Suppliers should conduct credit assessments including business credit checks, trade references, bank references, financial statements, and verification of licenses and insurance. Resolve provides business credit checks with quick turnaround times.
Can small construction material suppliers offer net payment terms?
Yes, through proper risk management: start with shorter terms (Net 15 or Net 30), require deposits for large orders, set conservative credit limits, and use non-recourse financing solutions that advance payment upfront while assuming credit risk.
What happens if a contractor doesn't pay within net terms?
Follow a systematic collections process: reminder calls, formal demand letters, late fee application, and potentially legal action or mechanic's lien filing. Implementing consistent late payment policies can significantly improve payment behavior and cash flow.
This post is to be used for informational purposes only and does not constitute formal legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Resolve assumes no liability for actions taken in reliance upon the information contained herein.