How To Write a Request Letter For Advance Payment For Construction
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 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.
Table of Contents
- Flexbase: Access Your Sample Request Letter For Advance Payment For Construction
- How Do I Ask For Advance Payment Professionally?
- How Do I Write A Letter Asking For an Advance Payment?
- What Should You Include With Your Letter Asking For Payment in Advance?
- 3 Tips On How To Draft A Request Letter For Advance Payment From Customer
- #1: Request Early
- #2: Overestimate The Amount You Ask For
- #3: Use Your Project History As Assurance
- Sample of An Advance Payment Request Letter For Construction
- How You Can Use Flexbase’s Template To Draft A Request Letter For Advance Payment For Construction
- Why Would Advanced Payment Be Necessary For A Construction Company?
Flexbase: Access Your Sample Request Letter For Advance Payment For Construction
In short, Flexbase is your answer to the construction industry’s broken payment system.
With a Flexbase subscription, not only do our customers reap the benefits of automated AIA billing forms, but our integrative software also ensures you get paid sooner with tools like:
- And much more
On top of automating the entire payment process, you’ll have access to a sample request letter for advance payment for construction.
Because the requirements of a construction contract will be different for every county and every state, it can be confusing, and potentially risky, to attempt completing one on your own.
When you log in to Flexbase, you’ll be greeted by every available template, fully compliant with state laws, ready to be auto-filled.
You don’t need to worry about getting the legal jargon right or including all the necessary information.
Simply fill out a few boxes and send it to your client — no need to spend time:
- Sourcing and downloading a random template
- Filling out every line; and
- Double-checking your state’s requirements to make sure your request letter is compliant with the laws.
Our automated template will do all of that for you.
But let’s say that instead of requesting advance payment (or in the case that your request is denied) you choose to apply for working capital.
Flexbase makes that process easier, too.
We’re able to integrate with all of your company’s financial data, which makes getting working capital so much quicker.
You’re able to borrow capital and boost your cash flow instantly.
The key is we already have access to the information that would normally take the banks weeks to review and approve.
Our app allows you to integrate with…
- Invoicing tools
- Project management tools
- Personal bank accounts; and
- Business bank accounts
…that lenders look at to evaluate your funding application.
We share that information with our preferred lenders so you can be automatically pre-approved.
Forget waiting weeks — or even months — for funding. With the Flexbase pre-approval system, you can see your approval status in 24 hours.
Another way we prove that we work for you? We don’t get paid unless you get paid.
Flexbase operates on a commission of just 0.5%. But what does that actually look like?
Let’s say you send an invoice progress payment for $12,000. Flexbase will receive just $60 — but only after payment is received.
Schedule your free demo to see how Flexbase can keep you on top of your cash flow and eliminate the need for advance payment.
How Do I Ask For Advance Payment Professionally?
A request for advance payment from a client will be included in the construction contract.
You’ll want to have a few solid reasons why the deposit will be put to good use, including:
- How the payment will be used; and
- Why it will benefit the client in the long run.
How Do I Write A Letter Asking For an Advance Payment?
You can choose to write your own letter or rework a sample letter you find online.
The problem there is ensuring your request letter is compliant with state and county laws.
With a Flexbase subscription, you’ll get access to pre-populated request letters, taking the guesswork out of the equation.
What Should You Include With Your Letter Asking For Payment in Advance?
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.
A Surety Bond
A surety bond is a promise to be liable for the:
- Default; or
… of another.
It is a three-party contract by which the surety guarantees the performance or obligations of the principal to the obligee.
Surety bonds that are written for construction projects are called contract surety bonds.
A project owner (the obligee) seeks a contractor (the principal) to fulfill a contract.
The contractor, through a surety bond producer, obtains a surety bond from a surety company.
If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred.
On the other hand, advanced payment bonds are used on both private and public projects when a down payment is requested by…
- The general contractor
- A subcontractor; or
- A supplier
…to protect the client if the contractor fails to fulfill its contractual obligations.
There are three parties to an advanced payment bond:
- The obligee
- Principal; and
- The surety company.
The obligee is the party who would get paid if there was a problem of non-performance; this is usually the owner or GC.
The principal is the company purchasing the bond; in this case, the supplier or contractor receiving the deposit.
The surety company backs the bond and is the one who will pay out if any claims are filed.
By claiming one of these bonds, the owner can recoup the full amount of the down payment.
But unlike other types of bonds used in construction, if the owner requests the down payment be refunded, the surety company is the party who pays, not the contractor.
The role of a construction surety bond is to ensure project completion within the terms of the contract.
- If a contractor experiences cash flow problems, the Surety may assist the contractor.
- If the contractor abandons the job, the Surety may replace the contractor.
3 Tips On How To Draft A Request Letter For Advance Payment From Customer
As with any request, you want to set yourself up for a resounding “yes” by making the answer easy for the person you’re asking.
In construction, that means:
- Including the advance payment request early in the contract negotiations.
- Asking for an amount large enough to avoid future advance payments — you don’t want to have to come back for more because you underestimated what you need.
- Using your history of previous projects to assure the owner or developer of the safety of the investment.
- Providing the client with the assurance that the advance funds will be used on their project only.
Read on for more tips on what to consider when you draft your request letter for advance payment for construction.
#1: Request Early
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: Overestimate 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.
Our automated payment software integrates with your current accounting and project management software for a streamlined and flawless payment process every time.
Stay on top of your project finances with Flexbase.
#3: Use Your Project History As Assurance
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.
Sample of An Advance Payment Request Letter For Construction
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 (______)________________.
How You Can Use Flexbase’s Template To Draft A Request Letter For Advance Payment For Construction
With a Flexbase subscription, you’re getting payment automation at your fingertips.
Generate payment apps with:
- Schedule of values
- Lien waivers
- Prevailing wage
- Insurance documents
- AIA forms
And because we already have access to all of your construction company’s payment data, you have already told us everything about your business that a lender would need or want to know.
This includes information like:
- Your assessor’s identification number (AIN)
- Who your clients are
- Past AIA billing forms
Our software can assess all of the business owner’s payment history data and pass this information on anonymously to lenders so that they have a higher quality, more comprehensive amount of data on your company from day one.
That way, when you log in to the Flexbase platform, you’ll be greeted with several different lending options that you have prequalified for.
Wave goodbye to:
- Gathering paperwork
- Tiple checking; and
The best part?
Instead of downloading a template you find online and filling it out yourself, your Flexbase subscription will give you access to a pre-populated request letter tailored to your client and payment needs.
Why Would Advanced Payment Be Necessary For A Construction Company?
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 range from:
- 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.
Whatever the reason you need to write a request letter for advance payment for construction, Flexbase has you covered.
Whether you opt to apply for working capital or simply use one of our pre-populated request letters, managing your next project (and your cash flow) has never been easier.