How Construction Firms Pay Subcontractors: Methods, Controls, and Virtual Cards

Construction firms pay subcontractors mainly by paper check, ACH, or virtual card, and check still dominates despite being the slowest, costliest, and most fraud-prone option on the jobsite. The harder decision isn't the rail. It's the controls you attach to each payment, from lien-waiver gating to retainage tracking to approval routing.

Construction is a big enough slice of the economy that getting this wrong has real consequences. Construction value added was about 4.5% of U.S. GDP in 2024, according to U.S. Bureau of Economic Analysis figures published through the Federal Reserve Bank of Richmond, and a lot of that money moves down the chain from general contractors to subs one progress payment at a time. When those payments stall or run on the wrong rail, the cost shows up as late jobs, padded bids, and an AP team buried in manual work. Get the method-plus-controls combination right and you pay subs on time without that drag, which the broader construction payment process puts in context.

Key Takeaways

• Most subcontractors are still paid by paper check, the slowest, costliest, and most fraud-prone method on the jobsite, even though ACH and virtual card beat it on every dimension that matters.

• The method is only half the decision. Lien-waiver gating, retainage handling, preliminary-notice tracking, and approval routing are what actually protect the project from a double-payment claim.

• Virtual card adds single-use spend controls and earns a rebate on spend you already make, turning a payment that costs you money into one that pays you back while shifting cost to the supplier's interchange.

• Federal prompt-payment rules require paying subs within seven days of getting paid yourself, with a statutory interest penalty, and many states mirror them on private work.

• The biggest barrier to card payments is supplier acceptance, an enrollment problem a managed program solves by reaching subs who already take cards instead of forcing the cost onto unwilling vendors.

How do subcontractors typically get paid?

Subcontractors typically get paid through a progress-billing cycle. The sub submits a payment application, the general contractor reviews and approves it against the schedule of values, and payment follows once lien waivers and retainage are settled. The rail behind that payment is usually still a paper check. About 76% of subcontractors usually or always receive payment by paper check, according to Rabbet's 2023 Construction Payments Report, even though faster and cheaper rails have been available for years.

That cycle is what makes construction AP different from a typical commercial payables run. You're not just cutting a check against an invoice. You're releasing a portion of a contract value, tied to verified percent-complete, with lien exposure attached and a slice held back as retainage. The method is the last step in a chain of approvals, and the rail you pick determines how much manual work the rest of that chain costs your team.

Why do so many subs still get paid by paper check?

Checks persist out of habit and perceived control, not because they're good. A few reasons keep them in place on the jobsite:

• They leave a familiar paper trail that project managers and field staff already trust.

• They fit how older project-accounting workflows and lien-waiver exchanges were built.

• They feel normal to subs who've always been paid that way and never asked for anything else.

The cost of that familiarity is real, though. Checks are slow to clear, expensive to cut, and the single most fraud-targeted payment method in business. About 63% of organizations experienced attempted or actual check fraud in 2024, according to the Association for Financial Professionals' 2025 Payments Fraud and Control Survey, which keeps check at the top of the fraud-exposure list year after year. The rails underneath the industry are shifting, too. The U.S. Treasury stopped issuing paper checks for federal disbursements, including vendor payments, effective September 30, 2025, under Executive Order 14247, which is a strong signal of where institutional payment practice is heading even for firms that never touch a federal contract.

How does paying on time protect bids and subcontractor relationships?

Paying on time is how you keep your best subs bidding your work. Slow payment is endemic in construction, where firms wait roughly 94 days on average to get paid, according to PYMNTS reporting on construction payment cycles, and that delay cascades straight down to subs. Nearly three-quarters of subcontractors reported payment delays of more than 30 days in 2023, per Rabbet's research, which is long enough to strain a specialty contractor's payroll and material financing.

When subs absorb that delay, they price it back into the next bid. They pad the number, slow the pace, or stop bidding your projects altogether, and the firms with the strongest crews are exactly the ones who can afford to walk. The aggregate cost is hard to ignore. Delayed payments added an estimated $273 billion to U.S. construction project costs in 2023, and subcontractor liens filed rose 141% year over year, according to the same Rabbet report. Prompt payment, in other words, is a margin lever disguised as an AP task, and it's tied directly to how you protect project cash flow across a lumpy draw cycle.

What are the main ways to pay a subcontractor?

There are four common ways to pay a subcontractor, and they differ on far more than speed. The table compares them on the dimensions a construction AP team actually weighs, from how fast the sub gets funds to what the payment costs you, how exposed it is to fraud, what controls you can attach, and whether it earns anything back.

The cost gap alone is meaningful. A paper-check transaction runs about $3.00 at the median, versus roughly $0.40 for an ACH payment, according to the Association for Financial Professionals' cost benchmarking, a figure Nacha's ACH Payments Fact Sheet echoes for the combined external and internal median ACH cost. Virtual card changes the math one step further, because the processing cost moves to the supplier's interchange while your business earns a rebate on the spend you were going to make anyway. That's the difference between a payment that costs you money and one that pays you back, which is why method choice belongs on the CFO's desk and not just the AP clerk's.

When does ACH make sense for subcontractor payments?

ACH makes sense as the default electronic rail for any sub who won't take a card. It's cheap, traceable, and fast enough for most progress payments, and it removes the float and physical-fraud exposure of mailing a check across the country. For a specialty sub running payroll on a tight cycle, ACH landing in one to three days beats waiting on a check that has to clear after it arrives.

The trade-off is in the setup. ACH requires collecting and protecting each sub's bank details, and those details are exactly what business-email-compromise schemes target with fake "we changed banks" requests. Understanding what an ACH payment is and how it works helps you set expectations with subs and build the verification step into enrollment rather than discovering the gap after a fraudulent change request slips through. ACH solves the cost-and-speed problem cleanly; it just moves your control burden onto bank-detail validation.

When should you pay a subcontractor by virtual card?

Pay by virtual card when the sub accepts cards and you want maximum control plus a rebate. A single-use virtual card number caps the exact payment amount, expires after use, and can't be reused if it's intercepted, which makes it the lowest-fraud option on the list by a wide margin. There's no static account number sitting in a sub's inbox or a vendor master file waiting to be skimmed.

The mechanics of how that turns into revenue are worth understanding before you pitch it internally, and our guide to how B2B virtual card payments work lays out the flow from issuance to settlement. The catch, every time, is acceptance. A virtual card only works if the sub will run it, which is why enrollment matters more than the card technology itself. We'll come back to that, because it's the single biggest objection construction AP teams raise about cards.

Is it ever okay to pay a subcontractor in cash?

Cash is almost never the right way to pay a subcontractor on a commercial project. It leaves no audit trail, complicates lien-waiver and tax documentation, and undermines the controls a construction CFO depends on to defend the project against claims. There's no transaction record to tie to a waiver, no remittance detail to reconcile, and nothing to show an auditor.

For a genuinely small, informal one-off it occasionally happens in the field, but for any sub doing real work on a real project, cash creates more risk than it removes. The moment a payment can't be traced to an approval and a waiver, you've lost the control structure that lien waivers, retainage tracking, and approval routing all exist to protect. Skip it.

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What controls should you attach to subcontractor payments?

The controls you attach to a subcontractor payment matter as much as the rail it travels on. A fast payment with no signed waiver behind it can expose the project to a double-payment claim, where you pay the sub and then pay a lower-tier supplier or laborer who filed a lien because the sub didn't pass the money through. Construction AP layers several protections onto each release so that doesn't happen.

• Lien-waiver gating, so payment only releases once the matching waiver is in hand.

• Preliminary-notice tracking, so you know who has preserved the right to file a claim before you cut anything.

• Retainage handling, so the withheld percentage is tracked, accrued, and released correctly at closeout.

• Approval routing, so the right project and finance roles sign off before funds move.

• Prompt-payment compliance, so releases meet the legal clock rather than missing it by a few days and triggering interest.

How do lien waivers and preliminary notices gate payment?

Lien waivers gate payment by trading a signed release of lien rights for the funds being paid. A conditional waiver takes effect only once payment actually clears, while an unconditional waiver releases the rights outright the moment it's signed, so sequencing the two correctly is what protects the general contractor from paying twice. Get that order wrong, hand over an unconditional waiver before the payment lands, and you've released the sub's lien rights with nothing in hand to show for it. Our breakdown of how lien waivers gate payment covers the conditional-versus-unconditional distinction that trips up many AP teams.

Preliminary notices sit upstream of the waiver and do a different job. Subs, suppliers, and lower-tier parties file them early in a project, often within a fixed window after first furnishing labor or materials, to preserve their right to file a lien later. For the GC, that filing is an early-warning list. It tells you who could come back with a claim, which means your AP system needs to track preliminary notices alongside contracts so you can see, before you release a payment, whether anyone downstream of your sub has put their lien rights on the record. Preserving and tracking those rights isn't optional paperwork; it's the map of your claim exposure on every job.

How should you handle retainage and progress billing?

Handle retainage by tracking the withheld portion of every progress payment as its own balance, separate from amounts already paid and amounts still due. Construction pays in installments tied to completion, and a percentage of each progress payment, often 5% to 10%, gets held back until the work is accepted, so your AP system has to track three numbers at once, which are what's been paid, what's retained, and what's owed at closeout. Mismanaged retainage is one of the most common sources of sub disputes, because a sub who can't reconcile what you're holding starts to assume you're holding too much. Our walkthrough of handling construction retainage covers the accounting and release mechanics.

Underneath retainage sits progress billing itself, and that runs on the schedule of values. The schedule of values breaks the contract price into line items by scope, and each payment application bills against those lines for the percent complete in the period. When the SOV is clean, the payment application practically validates itself, because each line carries its own running tally:

• Scheduled value, the dollar amount allocated to that scope.

• Prior billings, what's already been billed against the line.

• Work completed this period, the new percent-complete being claimed.

• Retainage withheld, the held-back slice on this draw.

With those numbers in front of you, the GC can approve against verifiable percent-complete instead of a sub's word. When the SOV is a mess, every pay app turns into a negotiation. The mechanics of the schedule of values behind progress billing are worth getting right, because the SOV is the spine the whole payment-application and retainage process hangs on.

What do prompt-payment laws require?

Prompt-payment laws require general contractors to pay subcontractors within a set window after receiving payment themselves. On federal construction, FAR 52.232-27 requires prime contractors to pay subcontractors within seven days of receiving payment from the government, with a statutory interest penalty for late payment, according to the Federal Acquisition Regulation. Many states impose similar deadlines on private work, with their own clocks and interest provisions that vary by jurisdiction.

The practical takeaway is that late payment isn't only a relationship problem. It can carry mandated interest that comes straight out of your margin, and on a public job it can put your standing on the contract at risk. Your payment workflow has to meet the clock, which means the approval routing and waiver gating in front of the payment can't take so long that you blow past the statutory window. That's where slow, manual processes stop being an inconvenience and start being a compliance liability.

How can you reduce the manual AP load without alienating subs?

You reduce the manual load by automating delivery and enrollment while keeping the method flexibility subs expect, not by forcing every sub onto one rail. Construction AP teams are buried in subcontractor invoices, change orders, and lien-waiver tracking, and the instinct to fix that by mandating a single payment method usually backfires. One AP person at a general contractor put the staffing reality plainly: "Our AP person is at capacity and we are on the verge of having to hire another." Adding a method mandate on top of that load doesn't lighten it. It just moves the friction to the vendor relationship.

The answer is a managed program that pays each sub the way that works for them while you keep the controls constant. Choosing the right construction payment software is part of that, and grounding the approach in vendor management best practices keeps the relationships intact while you change how money moves. The goal is fewer hands on each payment, not fewer payment options for your subs.

Why do vendors resist card payments, and how do you fix enrollment?

Vendors resist cards mainly because of the interchange cost they'd absorb, and some refuse outright or tack on a surcharge to cover it. This is the objection that sinks most DIY card rollouts, and construction AP teams feel it acutely. One controller's account of an internal card push captured the failure mode exactly: the team "hated the whole system... the payment portion is a mess because vendors don't sign up and they think the credit card option is ridiculous. They've reverted to doing payments internally." That comment drew 161 upvotes from peers, which tells you how common the experience is. A card program that depends on your AP staff cold-calling subs to enroll them will stall, because enrollment is a full-time outreach job and your team already has one.

The fix is managed enrollment that reaches the subs who already accept cards and sets expectations before the first payment, instead of pushing the cost onto unwilling vendors. This is exactly where vendor enrollment makes or breaks a card program, and it's the difference between a program that captures real card volume and one your team abandons after a quarter. When a managed service handles the outreach, the follow-up, and the acceptance confirmation, card payments become the subs' choice rather than your imposition, and the ones who genuinely won't take cards simply stay on ACH or check.

How does method flexibility keep both buyers and subs happy?

Method flexibility keeps everyone whole by matching the rail to the sub instead of forcing a one-size-fits-all policy. The same flexibility also solves a quieter operational problem that AP managers run into once they're paying several ways at once. As one VP of accounting described it: "We pay vendors several different ways, and I've been told that there is different approval routing for different payment methods and that they can interfere with each other." When check approvals route one way and card approvals route another, the routing logic collides, payments get stuck, and the team loses track of what's been approved on which rail.

A program that keeps controls constant across methods is how you avoid that collision:

• Card-accepting subs get paid by virtual card, and you earn a rebate on the spend.

• Subs who won't take cards get ACH or check, with the same waiver gating and approval steps applied.

• Your approval routing, lien-waiver gating, and retainage logic stay identical no matter which rail a given payment uses.

That consistency is also how you capture rebate on field and material spend without building a separate process for it, which our look at using cards for construction field spend explores. Stop treating method as all-or-nothing, and the approval-routing conflict disappears along with the vendor-acceptance fight.

Pay subcontractors on time with Corpay payments automation

Corpay runs the payment rails and controls behind your construction accounting system, as a complement to it rather than a replacement. Keep your project accounting where it is. We handle the last mile those systems weren't built for. That covers supplier enrollment and payment delivery across virtual card, ACH, and check, plus the approval controls in front of each release and single-transaction reconciliation that feeds your books cleanly. We connect to the construction stack you already run, including Sage Intacct, Acumatica, Microsoft Dynamics 365, Procore, and Buildertrend, through our broader library of 180+ ERP integrations, so the controls live where your team already works.

The security layer is built for the fraud exposure construction AP carries. Each payment runs on validated vendor banking, so a fraudulent "we changed accounts" request doesn't redirect a sub's funds. Vendor and approver access runs through MFA-protected portals, and the managed controls sit on top of every release. As Mastercard's #1 commercial B2B issuer connected to a network of more than 4 million accepting vendors, our managed service does the part most card programs fail at. It enrolls your subs and handles the follow-up, which directly answers the objection that subs won't sign up for cards.

The result is on-time subcontractor payment with the controls a CFO needs and far less manual AP labor. See how Corpay payments automation handles subcontractor payments end to end, or work through how virtual-card rebates turn AP spend into revenue to size the upside on your own card-eligible sub volume.

Frequently Asked Questions

What is the best way to pay subcontractors?

The best way depends on the sub. Virtual card is best when they accept it, because it adds single-use spend control and earns a rebate. ACH is the strong default for card-averse subs, and check is the fallback. Paper check is the costliest and most fraud-prone option despite being the most common.

How do subcontractors typically get paid?

Subcontractors are typically paid through progress billing, submitting a payment application that the general contractor approves against the schedule of values before releasing funds once lien waivers and retainage are settled. The payment itself usually travels by paper check today, though ACH and virtual card are faster, cheaper, and easier to control.

What is the safest way to pay a subcontractor?

The safest way is a method with a full audit trail and built-in controls, which points to virtual card or ACH over check or cash. A single-use virtual card is the lowest-fraud option because the number is capped to the exact amount and can't be reused. Pairing any electronic method with lien-waiver gating adds the legal protection.

Can I pay my subcontractors in cash?

You can, but you generally shouldn't on a commercial project. Cash leaves no audit trail, complicates lien-waiver and tax documentation, and undermines the controls construction finance teams need. For any subcontractor doing real work on a real project, an electronic method with a record is the better choice.

Is virtual card or ACH better for paying vendors?

Virtual card is better when the vendor accepts it, because it adds spend controls and earns a rebate on the payment. ACH is better for vendors who won't take a card, since it's cheap and traceable. Many construction AP teams run both, matching the rail to each sub rather than standardizing on one.

How do you track subcontractor payments and lien waivers together?

Track them by gating each payment release on the matching lien waiver, so the two move as one step instead of two separate tasks. A managed payment workflow ties the waiver, the approval, and the payment to a single transaction, which keeps the audit trail clean and prevents paying a sub before their waiver is in hand.

David Luther

Product Marketing Program Manager

David Luther, MBA is a product marketing program manager with years of experience in commercial banking, finance, and technology sectors, with research and writing appearing in financial publications.

Payments Automation