EPC and developer payment cycles, explained

How solar projects actually pay: draws, milestones, retainage

A solar project doesn't pay bills from a checking account — it pays from a construction loan, released in draws. The developer funds the build with borrowed money and, eventually, tax equity, and every dollar that leaves the project passes through a gate: the EPC bills the work, the owner reviews it, and on financed projects a lender's independent engineer verifies the percent complete before the draw funds. Only then does money move — to the EPC first, and from the EPC to everyone below it.

The billing itself runs on one of two architectures. Milestone contracts pay in tranches: something at contract execution, more when major equipment is ordered, more when it lands on site, then mechanical completion, substantial completion, and final acceptance. The alternative is monthly progress billing — a pay application against a schedule of values, submitted by a monthly cutoff with lien waivers attached. Either way, the contract typically holds back 5–10% of the value as retainage, released only when the project is essentially finished. And the whole structure flows downhill: subcontracts and supply agreements commonly carry pay-when-paid language, tying everyone upstream to the same machinery.

What that does to a supplier's cash

Start with the cutoff. Deliver racking on June 26 on net-30 terms, and if the EPC's pay application closed on June 25, your invoice doesn't enter the billing cycle until late July — the owner reviews it in August, and the draw funds after that. Your stated terms never really governed anything; the draw calendar did. That's how construction ends up the slowest-collecting major industry: benchmarks put average DSO around 83 days against roughly 60 across industries, with 60–90 days the normal range and subcontractors reporting average waits near eight weeks after submitting a pay app.

The exposure also stacks. Solar deliveries are lumpy — modules, racking and inverters arrive in truckload waves timed to milestones, so a single delivery week can put a quarter's worth of revenue on terms with one EPC, spread across two or three of their projects, each at a different point in its draw cycle. Meanwhile your own vendors want payment in 30, and the slowest dollars in the whole stack — the EPC's 5–10% retainage — stay trapped until substantial completion, which is precisely when EPCs manage their own squeeze by slowing everyone upstream. Disputes make it worse: a contested line item routinely holds up the entire pay application, not just the line.

How suppliers handle it

The traditional toolkit is real and worth using. Negotiate deposits or progress billing where your product gives you leverage — easier in a shortage, harder when three distributors quote the same module. Preserve lien and bond rights with preliminary notices, knowing solar adds wrinkles: projects on leased land or easements complicate mechanic's liens, which is why suppliers also file UCC notices on equipment. Credit insurance caps the damage if a buyer fails outright. Factoring converts an issued invoice to cash in days for roughly 1–5% per invoice — but it's disclosed to your buyer, and construction receivables with retention or pay-when-paid terms are often ineligible or heavily haircut. A bank line is the cheapest money if your financials clear covenants, and the slowest to arrange.

All of those either cost margin, cost the buyer relationship, or leave the wait itself untouched. The structural fix is to take the draw cycle off your balance sheet entirely: Yellowpay pays the invoice within 2 business days and takes the buyer credit risk. You offer the net terms the EPC's payment machinery demands, Yellowpay pays you at invoicing and owns collections, and the 80-day cycle becomes the platform's wait instead of yours. Two honest limits: it triggers when you invoice, so it can't fund deposits you owe your own vendors — and it won't dissolve a genuine dispute over what you shipped, because no financing product does.

Why does a net-30 invoice to an EPC take 75 days to collect?

Because the EPC pays from a draw cycle, your invoice waits for a pay-application cutoff, owner and lender review, and loan funding before your 30 days mean anything. Miss a monthly cutoff by one day and the entire sequence shifts by a month.

Does retainage apply to material suppliers, or only to the EPC?

Material-only suppliers usually aren't retained directly — retainage is withheld from payments for performed work, so it hits the EPC and its subcontractors. But supply-and-install agreements are often treated as subcontracts and do carry it, and pay-when-paid clauses push the EPC's trapped 5–10% upstream either way, so read the flow-down terms before pricing the job.

Related

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