Last year I watched a framing contractor nearly go under because he didn't understand how draw schedules work.
He bid a project assuming monthly progress payments. What he got instead was a draw schedule tied to milestones — and his early work didn't hit a payment milestone for 11 weeks. Meanwhile, he had $80,000 in labor and materials out of pocket with no payment in sight.
Understanding draw schedules isn't just nice to know. It's essential for keeping your business alive.
What Is a Draw Schedule?
A draw schedule (also called a payment schedule or progress payment schedule) defines when payments are released during construction. Instead of paying a lump sum at the end, the owner or lender releases funds at predetermined points as work progresses.
For subcontractors, the GC's draw schedule with the owner directly affects when you get paid. If the owner only releases funds after certain milestones, the GC can only pay you after those same milestones — regardless of what your contract says.
How Draw Schedules Work
There are two main types of draw schedules:
Milestone-Based Draws
Payments are tied to specific achievements: foundation complete, framing complete, dry-in, finishes, final inspection. Money releases when the milestone is verified.
Percentage-Based Draws
Payments are tied to overall completion percentages: 20% complete, 40% complete, etc. An inspector or architect verifies the percentage before funds release.
Residential projects often use milestone draws. Commercial projects typically use percentage-based draws aligned with monthly pay applications.
The Cash Flow Impact on Subcontractors
Here's where it gets real. Let's say you're an electrical contractor on a project with this draw schedule:
Draw 1 (10%): Foundation complete
Draw 2 (25%): Structure complete
Draw 3 (25%): MEP rough-in complete
Draw 4 (25%): Finishes 50% complete
Draw 5 (15%): Final completion
Your rough-in happens mostly during the third draw period. But you're ordering materials and starting work before Draw 2 releases. You're fronting weeks of labor and materials before seeing any payment.
If you haven't planned for this, you're in trouble.
Reading the Draw Schedule Before You Bid
Here's what I tell every subcontractor: get the draw schedule before you submit your bid. Understand when money flows, and price accordingly.
Questions to ask:
If the draw schedule creates cash flow gaps for your scope, factor that into your pricing. Front-loading your schedule of values can help, but only within reasonable limits.
Aligning Your Schedule of Values
Your schedule of values (SOV) should align with the project's draw schedule to maximize early payments.
For example, if Draw 2 releases when structure is complete, make sure your SOV shows meaningful percentage complete at that point. Items like mobilization, submittals, and material procurement can be front-loaded to help.
But be careful — overbilling early creates problems later when you need to show progress with little billable work remaining.
Working with Lender Draws
Many projects are financed with construction loans, which means a lender — not just the owner — controls draw releases.
Lender draws add another layer:
If the owner is working with a construction lender, understand the lender's draw process. It will directly impact when money reaches you.
Negotiating Better Draw Terms
As a subcontractor, you have some leverage to negotiate draw-friendly terms:
Request Material Advances
Ask if you can bill for materials upon delivery, even before installation. This reduces your cash outlay for long-lead items.
Negotiate Mobilization Payment
A mobilization line item (5-10% of contract) gives you funds at project start, before major work begins.
Push for Milestone Alignment
If your work doesn't align with the owner's draw milestones, negotiate sub-milestones in your subcontract that allow earlier billing.
Request Stored Materials Payments
If you're warehousing materials off-site, negotiate to bill for stored materials with appropriate documentation.
Planning Your Cash Flow Around Draws
Once you understand the draw schedule, plan your cash flow accordingly.
Map Out Your Cash Needs
For each month of the project, estimate your costs: labor, materials, equipment, overhead. Create a month-by-month cash requirement projection.
Map Out Expected Payments
Based on the draw schedule and your SOV, estimate when you'll receive each payment. Don't forget to add processing time — typically 30-45 days from draw approval.
Identify Gaps
Compare your costs to your expected payments. Where are the gaps? Those are the periods when you'll need to cover expenses from reserves or credit.
Plan Your Coverage
For each gap period, know how you'll cover it. Operating reserves? Line of credit? Reducing costs? Have a specific plan.
When Draw Schedules Cause Problems
Sometimes draw schedules create impossible cash flow situations for subcontractors. Watch for these warning signs:
Front-Loaded Owner Draws
If the owner's draw schedule front-loads early payments (like 40% at foundation), the GC might not have funds later to pay your work.
Milestone Misalignment
If your work is spread across multiple milestones, you may not see meaningful payment until you're 60-70% complete.
Extended Processing Times
If draw processing takes 45+ days, you're financing nearly two months of work before payment.
Retainage Stacking
If both owner and GC hold retainage, you could have 20% of your contract value held until final completion.
Draw Inspection Tips
Since draws often require inspection before release, here's how to help the process go smoothly:
Complete Your Work Cleanly
Inspectors look for complete, quality work. Don't request inspection until the work is truly ready.
Have Documentation Ready
Photos, test reports, certifications — have everything organized before the inspection.
Coordinate with Other Trades
If multiple subcontractors are requesting inspection simultaneously, coordinate to present a unified picture.
Communicate with the GC
Give the GC advance notice that you're ready for inspection. They'll coordinate with the owner and inspector.
Using Technology to Track Draw Progress
SubPaid helps subcontractors track project progress against draw schedules in real-time. You can see where work stands relative to payment milestones, forecast when payments will arrive, and identify cash flow gaps before they become emergencies.
It's like having a financial early warning system for your projects.
Frequently Asked Questions
Can I bill more than the draw percentage complete?
Usually no — your billing is generally limited to the overall project percentage complete. Overbilling relative to the draw schedule creates problems.
What if the project is delayed?
Delays push out your payments. Document delays carefully, especially if they're caused by others, as you may be entitled to delay damages.
Who decides when draw milestones are met?
Typically an architect, engineer, or owner's representative inspects and certifies milestone completion.
Can draw schedules change during a project?
Yes, though it requires agreement. If the scope changes significantly, the draw schedule should be updated.
What's the typical time from draw approval to payment?
Plan for 30-45 days on commercial projects. Residential projects with private financing may be faster.