Resources / Guides / Pay-when-paid

Pay-when-paid clauses, explained

Q: What does a pay-when-paid clause mean?

It makes a contractor's obligation to pay a subcontractor or supplier contingent on the contractor first being paid by the owner, pushing payment delay downstream.

Q: Is pay-when-paid enforceable?

It varies by state and wording. Many states enforce it as a timing mechanism only; pay-if-paid clauses require explicit language and are void in several states.

Last updated: August 2026 · 6-min read

A pay-when-paid clause makes a contractor's obligation to pay a subcontractor or supplier contingent on the contractor first being paid by the owner. In practice it pushes the project's payment delay — and often its payment risk — downstream to whoever supplied labor or materials.

What does pay-when-paid actually mean?

The clause appears in EPC subcontracts and supply agreements: "payment shall be made within [X] days of receipt of payment from owner." Two readings exist. As a timing mechanism, it just delays your money until the draw lands. As a risk-shifting mechanism (usually written "pay-IF-paid"), it can mean you never get paid at all if the owner defaults.

Is pay-when-paid enforceable?

It depends on the state and the wording. Many states enforce pay-when-paid as a timing clause only — payment must still come within a reasonable time. Pay-if-paid clauses require explicit language and are void in several states. Nothing here is legal advice; the practical point stands regardless: the clause exists to make the wait yours.

What it does to a supplier's receivables

Your DSO stops being your decision — it tracks the project's draw schedule.
A 30-day invoice quietly becomes 60–90 days when the draw slips.
Your credit exposure stacks: owner risk on top of contractor risk.

How suppliers protect themselves

The traditional toolkit: preliminary notices and lien rights on every job, credit limits per contractor, personal guarantees, and joint checks. All of it helps; none of it changes when the cash arrives. The structural fix is to take the wait off your balance sheet entirely — Yellowpay pays the invoice within 2 business days and takes the buyer credit risk, so the pay-when-paid clock runs on our money, not yours.

Glossary: pay-when-paid → · How much cash is your wait costing? → · Trade credit for solar construction supply →