Updated 2026-05-19

Pay-when-paid

Contract language tying payment timing to receipt of funds from another party.

Why it matters

Pay-when-paid clauses make payment to the subcontractor conditional on the general contractor receiving payment from the property owner, creating timing uncertainty that affects invoice collectibility. Most factors treat invoices subject to a valid pay-when-paid clause as contingent and therefore ineligible for funding, since the payment obligation is not yet fixed. Understanding whether a customer standard contract includes this language is part of the factor underwriting process. Construction businesses should review their customer subcontracts for conditional payment language before submitting those invoices for factoring.

How it appears in contracts

Pay-when-paid language appears most commonly in construction subcontracts. Factors evaluating construction invoices often ask sellers to confirm whether the upstream contract includes conditional payment terms. If discovered after funding, a pay-when-paid clause may give the factor grounds to treat the invoice as ineligible or disputed. Enforceability varies by state: some jurisdictions limit enforceability by treating these clauses as timing provisions rather than true contingencies, which affects how factors assess the risk when deciding whether to fund against these invoices.

Related terms

• Reserve
• Recourse
• Chargeback
• Notice of assignment