Construction businesses have to work through one of the most fragmented, delay-prone payment systems of any industry. According to a 2024 report, slow payments accounted for 14% of total construction costs, amounting to $280 billion. Progress billing, retainage, late payouts, lien waivers, and manual approvals can be a lot to manage, and the stakes are high. But an improved payment process can help mitigate the risks.

Below, we’ll cover how construction payment processing works, what slows it down, and how to make it faster, safer, and more predictable.

What’s in this article?

• What is the best payment system for construction businesses?
  
• How do progress payments and retainage work in construction?
  
• How can construction businesses prevent payment fraud and stay compliant?
  
• How can construction businesses make it easier for customers to pay?
  

What is the best payment system for construction businesses?

Construction businesses need a payment provider that understands the structure of construction billing—large payments, staggered timelines, retainage, lien waivers, partial payouts, and more. Here’s what to look for when you evaluate a processor:

Industry fit

Not all processors handle construction well. Some classify it as a high-risk industry because of the large ticket sizes, variable timelines, or potential for disputes, which can lead to account holds, reserve requirements, or denial.

Look for a processor that is comfortable with high-volume, high-value B2B transactions and used actively by other construction businesses or platforms you trust. If a processor seems wary of your business model, that is a sign to move on.

Progress billing and retainage

In construction, you’re likely billing in phases, holding back retainage, and applying deposits. Without manual work-arounds, your payment system should let you:

• Handle custom invoice formats that reflect construction billing structures
  
• Bill in installments tied to milestones
  
• Track retainage automatically
  
• Apply partial payments against open invoices
  

If the system doesn’t enable you to do that, it’s not built for construction.

Flexible payment methods

Commercial owners might prefer Automated Clearing House (ACH) transfers. Homeowners might want to pay by card. Others want to click a link and pay on the spot. The right system lets you offer multiple options—card, ACH transfer, bank transfer—without extra overhead.

Software integration

The best processors plug into your accounting, project management, or enterprise resource planning (ERP) systems or have clean application programming interfaces (APIs) you can use. If integration is poor, the time you’ll spend manually cleaning up payment records will outweigh any benefit of switching providers. And without any integration, you’ll have to reenter data or reconcile payments by hand.

Look for:

• Prebuilt integrations with the systems you use
  
• Developer-friendly APIs if you need something custom
  
• A clean dashboard for teams that manage payments daily
  

Stripe, for example, integrates with industry-specific tools such as Unanet so construction businesses can embed “Pay Now” links, accept large ACH payments, and reconcile them automatically.

Transparent pricing

Construction margins aren’t huge. You can’t afford to lose 3% of every invoice to unclear fees. You want a pricing structure that is transparent and scales with your volume, not one that penalizes you for seasonal dips or atypical jobs.

Ask potential processors:

• Are the rates flat, tiered, or interchange plus?
  
• What are the ACH and card processing fees?
  
• Are there monthly minimums, statement fees, or charges for complying with the Payment Card Industry Data Security Standard (PCI DSS)?
  
• Is there a cancellation fee or early termination fee?
  
• Are there reserve requirements for large or irregular transactions?
  

Fund timing

Some processors settle payments in 1–2 business days. Others might take longer, especially if the transaction is large or causes a review.

Ask about:

• Settlement timelines for ACH, card, and wire payments
  
• Any limits on daily volume or transaction size
  
• Policies regarding holding funds or creating reserves
  

You don’t want to find out that your $250,000 payment is on hold after you’ve issued payroll or ordered materials.

Security and compliance

You’re handling sensitive payment data, so the processor should help you meet compliance standards.

Look for:

• Support for PCI compliance (e.g., tokenization, hosted payment pages)
  
• Fraud detection features (e.g., address verification, transaction monitoring)
  
• Secure handling of bank details, particularly when you bring vendors on board
  
• Support for 1099 reporting, lien waiver workflows, or other construction-specific documentation
  

If your payment system isn’t built to protect you, it’s costing you more than it should.

Support and service

You want a processor that will be responsive when it matters. That means:

• Multiple contact options
  
• Dedicated support if you have a high payment volume
  
• Transparent issue resolution for disputes, chargebacks, or technical bugs
  

A delay in funds can halt a job. You don’t want to wait days for someone to return your call.

Future readiness

If your business expands with new services, more complex projects, and additional teams, your payment needs will change.

It helps if your processor supports:

• Marketplace or platform payouts (if you manage vendors)
  
• Subscriptions or recurring billing (for service contracts or maintenance)
  
• International payments (if you do cross-border work)
  
• Embedded payments or white-labeling (for software or partner platforms)
  

Even if you don’t need these now, having the option means you won’t need to start over later.

How do progress payments and retainage work in construction?

Construction’s financial structure is built around two key mechanics: progress payments, which keep work moving, and retainage, which holds back a portion of payment to manage risk. Together, they shape how and when money moves through a project.

Progress payments

Progress payments are partial payments issued throughout a project, typically based on how much work has been completed. Instead of waiting for the job to be finished, contractors bill incrementally (often monthly), according to milestones or a schedule of values.

These payments usually come in the form of payment applications, which outline what work has been done and how much is owed for a certain time period. In many cases, this application includes stored materials, percent complete per line item, and prior payments applied. For example, a contractor on a $1 million job that is 30% complete might submit a payment application for $300,000. That gets reviewed, sometimes independently verified, and then paid, often minus retainage.

This approach helps both sides of the transaction. Contractors maintain cash flow to cover labor and materials. Owners pay for verifiable progress, not unsubstantiated claims. Project managers get a clearer view of job status tied to real value.

Without progress billing, contractors would be expected to front all the costs for months, waiting to be paid only when everything is finished. That situation is not financially sustainable, especially for small or midsize businesses that manage multiple jobs at once.

Retainage

Retainage (also called retention or holdback) is a contractual mechanism in which a portion of each payment (typically 5%–10%) is withheld until the project reaches substantial or final completion. The intent is to ensure the contractor finishes the job, deficiencies and punch list items get addressed, and there’s financial leverage if disputes arise late in the project. In practice, this means a contractor that submits a $100,000 payment application might receive $90,000, with the remaining $10,000 held back until closeout.

Retainage is most commonly calculated per payment, not as one lump sum at the end. That means the holdback accumulates over time. On a 10-month job, 10% might be withdrawn from each month’s invoice—a total of $100,000 in deferred funds on a $1 million contract. For many contractors, that withheld amount represents most or all of their profit margin.

The contract defines the timing and conditions for retainage release. Often, retainage is paid out when:

• The entire project is deemed substantially complete
  
• All closeout documents, punch list work, and lien waivers are submitted
  

Some contracts enable partial release of retainage, particularly on large or multiphase jobs. Here are some examples:

• After 50% of the work is completed, the retainage rate might decrease.
  
• Subcontractors might receive full retainage when their specific tasks are complete, even if the larger project is ongoing.
  

Whether these options are used depends heavily on how the contract is written and how aggressively contractors negotiate. Too often, retainage terms are treated as fixed. But as with anything in a construction contract, they’re negotiable:

• On low-risk projects, it might make sense to push for a reduced or waived retainage.
  
• For known subcontractors, general contractors might agree to earlier release triggers.
  
• Owners might offer phased payouts tied to the completion of specific job elements.
  

Knowing your legal rights and the local laws that govern retainage can help you structure fairer terms.

Tracking retainage and progress payments

Managing these two elements helps you stay financially stable throughout a project. Your systems need to:

• Apply retainage automatically per invoice
  
• Track total withheld amounts per vendor and job
  
• Separate retainage from earned but unpaid revenue
  
• Handle multiple retainage release events, especially across long schedules
  

Remember that retainage isn’t always applied the same way. Some owners apply it on materials and labor; others do so on only subcontracted tasks. Tools that account for those variations help prevent disputes and missing funds.

How can construction businesses prevent payment fraud and stay compliant?

Construction businesses manage large sums, long payment chains, and a lot of third parties, which puts them at risk of fraud and noncompliance. But they can avoid most of the damage with the right systems and habits.

Here’s how to protect your business without slowing it down:

Switch to electronic payments

Checks can be stolen, forged, or intercepted in the mail. Fraud related to checks has been rising: in 2022, financial institutions in the US filed more than 680,000 Suspicious Activity Reports (SARs) to report potential check fraud. Switching to electronic payments such as ACH transfers, secure online portals, and direct bank links minimizes those risks and makes your payment trail easier to track.

Always verify financial information

A compromised business email is another major risk. A fraudulent actor can pose as a vendor and ask you to update their bank details, hoping you’ll wire funds to the wrong account. To avoid this, build a verification process. Whenever someone changes their payment information, confirm it by phone with a number you already have (not the one in the email). And never share or accept sensitive bank details via email. Use a secure onboarding portal instead.

If your vendors are entering bank information, ensure they do so through a system that is encrypted and compliant, not a PDF form or email attachment. Some platforms such as Stripe handle this natively.

Set up internal controls

This is basic accounting hygiene but worth repeating: separate duties. The person who approves invoices shouldn’t be the same person who sends payments. Require multiple sign-offs for large transfers. Audit regularly to catch errors before they become expensive.

Use fraud detection for incoming payments

If you accept credit card payments, especially from homeowners or smaller clients, choose a processor with built-in fraud screening. Tools such as address verification, velocity checks, and AI flags help spot suspicious activity before it affects your account.

Keep up with compliance requirements

Noncompliance with payment laws, tax rules, or contract obligations can lead to penalties, lawsuits, or worse. These are the areas that matter most in construction:

Prompt payment laws

Most US states have laws that require contractors and subcontractors to be paid within a specific window, often within 7–30 days after you receive payment from the owner. If you delay payment without justification, you could owe interest or face licensing issues.

Track deadlines, and release payments on time. Use software that time-stamps approvals and reminds you when payments are due.

Lien waivers and release documentation

Every time you pay someone, you should track conditional waivers, unconditional releases, and final lien waivers. If you don’t, you’ll be vulnerable to lien claims, even on work that’s already paid.

Some payment platforms automate documentation tracking by linking payment to waiver exchange. The subcontractor uploads their signed waiver, and then the system pays them. Whether you automate it or not, don’t skip the documentation step.

Tax reporting obligations

If you’re paying independent contractors or small businesses, you’re likely responsible for reporting those payments at the end of the year. A well-integrated payment system can collect tax IDs and track payment totals for easier 1099 filing.

PCI compliance for card payments

If you take card payments, you need to comply with the PCI DSS. Choose a processor that uses tokenization, hosted payment pages, and secure storage. Never collect or store raw card data yourself.

Know Your Customer (KYC)

If you’re facilitating payments to third parties, you might fall under money transmission regulations. Use a provider that understands KYC requirements so you’re not manually collecting IDs or running background checks without a framework.

How can construction businesses make it easier for customers to pay?

If you want to get paid faster, the simplest fix is often to make it easier for your customers to pay you. Send clear invoices, include simple instructions, and don’t rely on checks. The easier the payment process is, the shorter your days sales outstanding (DSO) and the stronger your customer relationships will be.

Here are tactics you can use:

Offer multiple, convenient ways to pay

Different customers want different payment options. Some will always prefer to pay by ACH or bank transfer. Others, particularly homeowners or small-business clients, might want to use credit cards to manage cash flow or earn rewards.

To avoid bottlenecks, your payment system should support:

• ACH transfers for larger B2B payments
  
• Credit and debit cards for customers who prefer speed or flexibility
  
• Digital wallets (e.g., Apple Pay) where relevant
  
• Wire transfers for high-value transactions or clients with internal payment systems
  

Send comprehensive invoices that are easy to pay

The best invoices give the customer no doubt about why they’re being billed and a fast way to complete payment. That usually means:

• A clean, standardized invoice format (e.g., line items, due date, project information)
  
• Supporting documentation (e.g., photos, delivery slips, signed change orders) when needed
  
• A built-in “Pay Now” link that works on desktop and mobile
  
• Options to pay by card or bank transfer, directly from the invoice
  
• A confirmation screen or email once payment is submitted
  
• Contact details for any billing questions
  

If someone has to download a PDF, open their bank app, look up your routing number, and hope they’ve entered everything correctly, that will slow down the process and make delays more likely. In contrast, a Stripe-powered invoice lets a client review the bill and pay securely in under a minute. That ease can translate into fewer follow-ups and faster collections.

Match your billing structure to the project

Progress payments are the norm in construction. But they’re not always intuitive for customers outside the industry, especially if they’re expecting to be invoiced only at the end.

Ensure your invoices and communications reflect how your billing works:

• Include clear explanations for partial payments or retainage.
  
• List prior payments and current balance so they can see the full picture.
  
• Link the payment to the corresponding deliverable or work completed for milestone-based billing.
  

Transparency regarding payment timing helps avoid disputes and makes approvals quicker.

Use a customer portal when it makes sense

If you work with repeat clients, consider setting up a portal where they can:

• View open invoices
  
• Pay multiple balances at once
  
• Download receipts or payment history
  
• Manage stored payment methods
  

A self-serve process can reduce the back-and-forth and workload on your accounting team. It also gives your clients more autonomy, which often leads to faster payments and fewer questions.

Consider collecting payment on-site for smaller jobs

In residential or light commercial work, collecting payment at the time of service can speed things up. If you’ve completed a bathroom renovation or a heating, ventilation, and air-conditioning (HVAC) install, you can eliminate delays by accepting card payments or bank transfers right then, via mobile device or tablet.