Progress payments are payments which are provided progressively over the course of a project in direct relation to how much work has been completed. They may also be known as progressive payments. This method of payment can be seen in the building trades, where it may be used to compensate contractors, subcontractors, and other people on a job. It is also seen with some government contracts.
One advantage to using progress payments is that it reduces the need for working capital because people do not need to come up with a large sum of money up front to pay for a project. They also do not need to struggle to make a big payment at the end of the project. Instead, they can space payments out as the work is completed. This also allows people to be more flexible with the working capital they do have because they do not need to sink it all in one place.
Another advantage to compensating people in the form of progress payments is that they provide opportunities to monitor work. Paying for work in segments encourages people to stick to stated work schedules, and also allows the person doing the paying an opportunity to stop a project if it is not progressing as planned or there are concerns about quality. The payments also discharge any obligations up to that point in the work, which makes dismissal of workers less complicated.
When people use progress payments to pay for general contracting work, they should be careful to obtain lien releases with each payment. The 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 back pay. If lien releases are not obtained, the property owner has no way of knowing whether or not suppliers and subcontractors have been paid, and this could become a problem further on down the line.
If payment for a project is going to be handled in the form of progress payments, this should be structured into the contract. The contract should clearly outline the responsibilities and expectations of all parties involved to reduce the risk of disputes as the project proceeds. Having a lawyer who is familiar with these types of projects review the contract can be highly advisable to ensure that any loopholes or glaring errors are addressed before the contract is finalized.