Maintaining a steady cash flow is essential to the success of your construction business.
And sometimes, to ensure your next project doesn’t leave you in a hole, it is necessary to submit a request letter for advance payment for construction.
But your specialty skills as a GC or subcontractor don’t necessarily include writing a professional letter asking for payment in advance.
In this guide, we’ll address how to write an advanced payment letter request for construction and answer your common questions from…
- What should you include in your request letter?
- How should you word it?
- How long does your request letter need to be?
…so you can secure advanced payment and ensure your next project’s success.
Flexbase Is Your Answer to the Construction Industry’s Broken Payment System
With the Flexbase finance super app, not only do our customers reap the benefits of 30 extra days to pay for purchases, but our integrative software also helps you manage your business finances with tools like:
- Accounting software integrations
- Receipt upload and project tracking
- Customizable spending controls
- Many more
Flexbase’s integrated banking and credit card solutions give you every tool you need to stay on top of your cash flow.
Knowing every detail of your current financial status can help you know when advance payments for jobs might be necessary. Because the rules for advance payments and other details of construction contracts vary by state, it can be confusing and potentially risky to file advance payment request letters.
By using the detailed accounting and cash flow optimization tools, you’ll be able to determine when it makes sense to request advanced funding. If you find that your cash flow is sufficient for your project, you have the flexibility to self-finance materials purchases and avoid advanced payment letters. This potentially allows you to avoid:
- The time it takes to source and download a request template
- Researching the laws in your state
- Completing the letter and sending it to your client
- Waiting for payment
Of course, if your cash flow reports indicate that advance payment from your client is needed, you can still proceed with that request. Flexbase’s detailed insights and tools give you the flexibility of choice.
Get started with the Flex Credit Card to see how Flexbase can keep you on top of your cash flow and eliminate the need for advanced payment.
Why Would a Construction Company Need to Send an Advanced Payment Letter Request for Construction?
Although down payments or upfront deposits are increasingly uncommon on construction projects, some contractors or suppliers do find them necessary at times.
However, if you’re thinking of writing a request letter for 50% down payment, be prepared to run into some obstacles.
Some states limit the size of the down payment on a home improvement contract, so be sure to look into your county or state’s laws before submitting your request letter.
A few reasons advance payment may be needed before starting a project include:
- The cost associated with getting a new project off the ground
- Materials purchase
- Equipment rental or purchase
- Capital needed to hire additional workers
As an incentive for supplying extra capital, the client may be given a discount on the final project amount.
How Do I Write a Letter Requesting Advanced Payment?
If you determine that sending an advance payment letter is required, you’ll have to decide whether to write your own letter or rework a sample letter you find online.
The chief difficulty you’ll face is ensuring that your request meets all the legal requirements of your state and county. It is important to spend the time needed to ensure proper compliance, or consult with a specialist attorney.
With the understanding that you must follow the proper procedures and requirements for your state, let’s dive into the general information you should include in your request letter.
What Should You Include in Your Advanced Payment Letter Request?
In your request letter for advance payment for construction, there are a few things you should include to make sure the client is aware and comfortable with the request (and therefore, more likely to agree).
Be sure to include:
- How you plan to spend the advance payment or deposit (what specific materials or equipment you plan to purchase or rent)
- Exactly how much money you will need
- How the client will benefit (ie. schedule improvement, price of materials); and
- The timeline of when the materials will be delivered and a promise for open and timely communication.
- It will also be helpful to share your surety bond information and let the client know they’re able to require an advanced payment bond.
This will help make them feel at ease and confident in their deposit.
Advanced Payment Request Template
Keep in mind that the requirements for a legal advance payment request letter for construction will vary by state.
For a generic sample request letter for advance payment for construction, see below:
To _________ :
Please allow this letter to serve as our request to receive an advance payment from the
Brownfield Opportunity Areas State Assistance Contract (Insert contract #).
The __________________________ hereby requests a 25% advance payment, in the amount of $______________.
Please note that costs incurred and paid from the advance must be accounted for in the subsequent payment request. Furthermore, the advance will be deducted from the total amount of reimbursement requested.
If you have any questions or need additional information to process this request, please contact
___________________________ at (______)________________.
3 Tips on How to Draft a Business Letter Requesting Advance Payment for a Construction Project
#1: Issue Your Request Before You Need to
By issuing a request letter for advance payment for construction early, you will be able to gauge the client or developer’s acceptance or resistance to grant the advance.
Once you know which way they are leaning, you’ll be able to adjust your strategy.
For example, let’s say you ask a client for an advance of 10% of your total project to purchase materials.
You could position your request by highlighting the ongoing rate of inflation to the client.
If you’re able to purchase materials now at the current price, you could save the client money in the long run.
But, if your request is declined and you have to purchase the same materials later on, that delay could result in extra expenses because of a price increase.
#2: Over-Estimate the Amount You Ask for
Before you submit your request, be sure the amount you’re asking for is an amount large enough to avoid the need for future advance payments.
However, be aware that there may be some legal limitations to how much you can request.
Down payments for large projects typically fall between 20-40% of the total cost of the project.
While some states don’t have any restrictions on the advanced payment amount that you can request, there are a few states that require down payments to be no more than one-third of the total cost of the project.
In California, for example, the state has strict guidelines for down payments to building contractors: The legal limit is either 10% of the total cost or $1,000, whichever is less.
Doing your research and knowing the limits, if any, of advance payments will save you time and stress.
But, managing your cash flow and being able to estimate how much you’ll need in the first place can be a daunting task. Flexbase’s automated payment software integrates with your current accounting and project management software for a streamlined and flawless payment process every time.
#3: Use Your Reputation
Use your history of previous projects to assure the owner their advance payment is in good hands.
It’s a good practice to provide owners with the names and phone numbers of past project owners.
You could also consider material suppliers and subcontractors to give testimonials to your work.
When you can, highlighting exactly what the advance payment will be used for (ie. specifically what materials or purchases) will give the owner assurance that the funds will be used for their project only.
How Flexbase Helps You Draft an Advanced Payment Letter Request for Construction
With Flexbase’s smart tools, you’re getting payments and cash flow controls at your fingertips.
Ensure your cash flow can fund your latest project, or know when to request advance payment with:
- 60 days to pay with 0% interest
- Instantly see your current cash flow status in the app
- Generate needed invoicing or financial reports with your accounting software using Flexbase’s built-in integrations
- Larger credit limits than most business credit cards
Doing business with Flexbase helps you do more with your working capital. Bid on more projects, deliver on-time, and start new projects even while waiting to be paid for completed jobs. Flexbase gives you the breathing space to grow. And, with our precision cash flow tools, you’ll know when you’ll need to send an advanced payment letter.
Flexbase makes growing your business easier. Get started today with our easy application. There’s no impact on your credit score, so you can apply with confidence.