# Best Way to Pay Subcontractors: 6 Gates First

> The best way to pay subcontractors is standard ACH through a bill pay tool, released only after six gates clear: a W-9 on file, a current insurance certificate, a conditional lien waiver, bank details verified by phone, an invoice matched to scope and retainage, and a pay date inside your state's prompt payment window. The rail costs cents. Skipping a gate costs thousands.

- Canonical URL: https://www.pavadotech.com/blog/best-way-to-pay-subcontractors
- Author: Om Patel
- Published: 2026-09-13
- Topic: Custom CRM

The best way to pay subcontractors is standard ACH, sent from a bill pay tool that syncs to your books, and released only after six pieces of paper are in the file. The rail is the cheap, easy part. QuickBooks Bill Pay lists standard ACH at no per-payment fee. Melio charges $0.50 after its free allowance. BILL charges $0.59.

What costs real money is the payment that goes out before the paperwork does. A painter in r/tax paid about $130,000 to roughly 20 subs in his first year and [could only find W-9s covering about $65,000 of it](https://www.reddit.com/r/tax/comments/1i31vn2/new_business_owner_here_paid_subcontractors_all/) when 1099 season arrived. A homeowner in r/legaladvice sent a $14,000 ACH to a contractor whose email had been hacked, and [the money went to a scammer's account](https://www.reddit.com/r/legaladvice/comments/15rgofj/someone_hacked_our_contractors_email_and_scammed/). Neither problem had anything to do with which rail they chose.

Most pages ranking for this keyword either list payment methods for freelancers or tell builders to "use a payment schedule." One of the builder guides still tells you to file a 1099 for anything over $600, which stopped being the threshold on January 1, 2026. This guide is written for the contractor doing the paying, and it is built around the order things have to happen in.

- **Standard ACH wins on cost and record.** $0 to $0.59 a payment through the major bill pay tools, versus a median $2.01 to $4.00 to issue a paper check.
- **The 1099-NEC threshold is now $2,000** for payments made in 2026. Collect the W-9 before the first dollar anyway, and card payments are reported on a 1099-K instead.
- **Conditional waiver in, unconditional waiver out.** California's unconditional form says it is enforceable even if the signer has not been paid.
- **Verify bank details by phone, every time they change.** 74% of US organizations were hit by business email compromise in 2025, and FBI-reported losses from it passed $3 billion.
- **Your state may set the pay date for you.** California and Texas both require payment within seven days of receiving the owner's money, with 2% and 1.5% monthly penalties.
- **Subs keep score.** On Reddit they describe dropping GCs who pay late twice, and showing up first for the ones who pay fast.

## What is the best way to pay subcontractors?

Standard ACH from a bill pay platform connected to your accounting, on a fixed weekly or twice monthly pay run, with each payment held until the sub's file is complete. That combination is cheap, it leaves a bank record tied to an invoice, it lets the sub choose how they receive money on some platforms, and it gives you one place to stop a payment when something is missing.

The rest of this article is the detail behind that sentence: what each rail really costs, the six gates to clear before money moves, and the legal clocks that decide how long you can wait.

## The payment rails compared, with real fees

Here is what each way of paying a sub costs, read from the providers' own pricing pages in September 2026 and from the Association for Financial Professionals' payments cost benchmark.

| Rail | What it costs you | Speed | Records and control |
| --- | --- | --- | --- |
| Paper check you write | Median $2.01 to $4.00 per check issued, all-in ([AFP, via Nacha](https://www.nacha.org/news/ach-costs-are-fraction-check-costs-businesses-afp-survey-shows)) | Days, plus mail | Good, but the most fraud-targeted rail |
| Check mailed by bill pay | $1.50 at [QuickBooks Bill Pay](https://quickbooks.intuit.com/bill-pay/), $1.50 at [Melio](https://melio.com/pricing/), $1.99 at [BILL](https://www.bill.com/pricing) | Days | Tied to the bill in your books |
| Standard ACH | $0 at QuickBooks Bill Pay, $0.50 at Melio after free monthly payments, $0.59 at BILL | 1 to 3 business days | Best: invoice, approval and payment in one record |
| Faster or same-day ACH | $10 at QuickBooks, $11.99 at BILL, 1% capped at $75 at Melio | Same or next day | Same as ACH |
| Instant transfer | 1% at all three, capped at $100 (QuickBooks, BILL) or $75 (Melio) | Minutes | Same as ACH |
| Your credit card, paid out as ACH or check | 2.9% at Melio and BILL | 1 to 3 days | Good, and reporting shifts to 1099-K rules |
| Zelle | No fee, limits set by your bank | Minutes | Poor: no invoice data, hard to reverse |
| Interac e-Transfer for Business (Canada) | Varies by bank | Seconds | Up to $25,000 per transaction and carries invoice numbers ([Interac](https://www.interac.ca/en/payments/business/send-receive-money-with-interac-e-transfer-for-business/)) |
| Cash | Nothing visible | Immediate | Worst: no bank record at all |

Melio's free Go plan includes 5 ACH payments a month, its $25 Core plan 20, its $55 Boost plan 50, and its $80 Unlimited plan has no cap. BILL's Essentials plan is $49 per user per month before transaction fees.

### A worked example: one $12,000 drywall draw

Say you owe a drywall sub $12,000 on a progress draw. Here is what the same payment costs on each rail:

- **Standard ACH:** $0 through QuickBooks Bill Pay, $0.50 through Melio once the free payments are used, $0.59 through BILL.
- **Mailed check:** $1.50 to $1.99 through a bill pay tool, or a median $2.01 to $4.00 if your office writes and mails it.
- **Same-day ACH:** $10 at QuickBooks, $11.99 at BILL, or $75 at Melio, where 1% of the draw hits its cap.
- **Instant:** 1% of $12,000 is $120, so you hit the cap: $75 at Melio, $100 at QuickBooks or BILL.
- **Charged to your card:** 2.9% of $12,000 is $348.
- **Zelle:** free, but at the $1,000 daily limit one r/GeneralContractor user was [left with after switching banks](https://www.reddit.com/r/GeneralContractor/comments/1g893x1/how_do_yall_pay_your_subs_zelle_check_cash_other/), it would take twelve days to send.

Now scale it. A small GC paying 15 sub invoices a month pays nothing extra on standard ACH through QuickBooks Bill Pay, about $5 in transaction fees on Melio's free plan, and roughly $58 on BILL Essentials for one user. Writing those same 15 checks in house lands somewhere between $30 and $60 at AFP's median. None of those numbers will make or break a contracting business. The rail decision is mostly about records and control, not fees.

That is why the Zelle question keeps coming up and keeps getting the same answer. In the same thread, one accountant wrote: "As an Accountant, we hate Zelle or Venmo. Do Ach instead." Another GC said he pays for BILL because "not having to discuss payments with subs is worth the $100 a month for me."

## When paying a sub by credit card makes sense

Rarely, and only as a financing decision. At 2.9%, running that $12,000 draw through Melio or BILL on your card costs $348. If your statement cycle buys you about 30 days before the money leaves your account, that is roughly 35% annualized for a month of float. A business line of credit is almost always cheaper.

The card route earns its place in one situation: the owner's draw is late, the sub needs paying inside a legal window, and the fee is smaller than the penalty or the relationship damage. More on those windows below.

There is also a reporting wrinkle worth knowing before you choose it. The [IRS instructions for Forms 1099-MISC and 1099-NEC](https://www.irs.gov/instructions/i1099mec) say "payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity" and are not subject to 1099-NEC reporting. When a platform charges your card but your sub receives a bank transfer, get your accountant to confirm the treatment for that specific platform rather than assuming the 1099 disappears.

If you are on the receiving side of this decision with your own customers, the maths is different, and it is covered in [whether contractors should accept credit cards](https://www.pavadotech.com/blog/should-i-accept-credit-cards-as-a-contractor).

## Gate 1: a W-9 on file before the first dollar

No W-9, no payment. That is the single rule that would have saved the r/tax painter above, and it is the one a CPA in that thread gives every client: "my clients not pay their subcontractors until the subcontractor fills out the W9. You might want to do that going forward." Another commenter put the leverage more bluntly: "They'll get you a W-9 if they want paid."

What changed in 2026 matters here. The [IRS instructions](https://www.irs.gov/instructions/i1099mec) now say to file Form 1099-NEC for each person "to whom you have paid at least $2,000" in the course of your business during the year, and that the threshold "may be adjusted for inflation beginning in calendar year 2027." The form is due January 31. Payments to corporations, including LLCs taxed as C or S corporations, are generally exempt.

That higher threshold tempts people to skip the W-9 on small subs. Do not. A tile setter you pay $1,800 in March is under the line, and the same sub is over it after one more bathroom in October. Chasing a W-9 from someone you last worked with seven months ago is precisely the position the painter ended up in.

Three more reasons to collect it up front:

1. **Backup withholding.** The IRS says payees who have not furnished their TINs "are subject to withholding on payments required to be reported," and the [backup withholding rate](https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding) is 24%. If a sub will not give you a TIN, you are supposed to be withholding and depositing that money, not paying the full invoice.
2. **Penalties.** The IRS lists [information return penalties](https://www.irs.gov/payments/information-return-penalties) for 2026 of $60 per return up to 30 days late, $130 through August 1, and $340 after August 1 or not filed, rising to $680 for intentional disregard.
3. **Validation.** Once you are filing 1099s, the IRS [TIN Matching service](https://www.irs.gov/tax-professionals/taxpayer-identification-number-tin-matching) lets you check a name and TIN combination through an e-Services account before you file. Melio's Core plan and up, and BILL's plans, include W-9 collection and TIN verification inside the payment flow.

In Canada, the equivalent is the T5018. If construction is your main business activity, the CRA requires a slip for each subcontractor paid more than $500 in the reporting period, excluding GST and HST, filed within six months of the period's end ([CRA](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t5018-slip-statement-contract-payments.html)). Collect the business number or SIN at onboarding, for the same reason. The penalty structure and the garage door company that did not think it was in construction are covered in our [subcontractor software breakdown](https://www.pavadotech.com/blog/subcontractor-management-software-for-small-builders).

One caution while you are collecting forms: a W-9 does not make someone a subcontractor. If you set the hours and direct the work, the paperwork will not save the classification, which is the whole subject of [hiring a subcontractor versus an employee](https://www.pavadotech.com/blog/should-i-hire-a-subcontractor-or-an-employee).

## Gate 2: a current insurance certificate on the payment date

Check the certificate on the day you release the money, not the day the sub started. A policy that was valid in May and cancelled in July does nothing for you at your premium audit. As one commenter in the same r/tax thread warned, if a sub cannot show workers comp, "you can be on the hook to pay the premium for the amount you paid the subcontractor and the class code under which they fall."

This gate belongs to payment, not site access, for a practical reason: the office enforces payment, while a foreman with a schedule to hit enforces site access. One commenter in the r/GeneralContractor thread on how to pay subs listed the file every sub must provide, W-9 and a COI with general liability and workers comp, then added: "Don't let this slide any time." The full system for tracking expiry dates and the audit arithmetic is in our guide to [tracking subcontractor insurance certificates](https://www.pavadotech.com/blog/how-to-track-subcontractor-insurance-certificates).

## Gate 3: a conditional waiver in, an unconditional waiver back

Pair every payment with two lien waivers: a conditional one that arrives with the invoice, and an unconditional one that comes back after your payment has cleared. This is the gate that stops you paying for the same work twice, once to the sub and again to the sub's supplier who files against the property because the sub never paid them.

The two forms do opposite jobs, and California's statutory wording shows why subs will not sign the second one early. The [conditional progress waiver](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8132) says it "is effective only on the claimant's receipt of payment from the financial institution on which the following check is drawn." The [unconditional version](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8134) carries this notice to the person signing it: "THIS DOCUMENT IS ENFORCEABLE AGAINST YOU IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT BEEN PAID, USE A CONDITIONAL WAIVER AND RELEASE FORM."

So the sequence is fixed:

1. Sub sends invoice plus a conditional waiver for that amount.
2. You pay.
3. Payment clears.
4. Sub sends the unconditional waiver for that amount, and you file it against the payment.

Form matters in some states more than others. [Levelset counts 12 states](https://www.levelset.com/blog/lien-waivers-12-states-with-required-forms/) with statutory lien waiver forms: Arizona, California, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri, Nevada, Texas, Utah and Wyoming, with Florida offering its form as a safe option and barring parties from requiring a non-statutory one. In those states a waiver that does not substantially match the statute can be invalid. Georgia goes further and makes a waiver ineffective unless the claimant has actually received payment.

When a sub buys significant materials on its own account, add a second layer. A joint check, payable to both the sub and its supplier, puts the supplier's endorsement on the payment itself, and a conditional waiver from the supplier closes the loop. It is more paperwork, which is why it is worth doing on the one or two subs per job with big material bills rather than everyone.

If you ever end up on the other side of this and need to enforce your own rights, the timing and break-even maths are in [when a contractor should file a lien](https://www.pavadotech.com/blog/when-should-a-contractor-file-a-lien).

## Gate 4: bank details verified by phone

Never pay to new or changed bank details that arrived by email until you have confirmed them on a phone number you already had. This is the gate most small contractors do not have at all, and it is the one attackers are actively testing.

The [2026 AFP Payments Fraud and Control Survey](https://www.financialprofessionals.org/about/learn-more/press-releases/Details/over-75-percent-of-us-firms-experienced-payments-fraud-in-2025-while-ai-adoption-for-fraud-mitigation-lags) of 465 treasury practitioners found 76% of US organizations experienced attempted or actual payments fraud in 2025, and 74% were affected by business email compromise. Checks were still the most targeted rail at 58%, ahead of ACH debits at 30% and wires at 25%. The [FBI's 2025 Internet Crime Report](https://www.ic3.gov/AnnualReport/Reports/2025_IC3Report.pdf) put reported business email compromise losses at $3,046,598,558, up from $2,770,151,146 in 2024.

Construction is an easy target because the pattern is normal: a sub's office manager emails an invoice, a new invoice arrives with "updated banking details," and nobody thinks twice. In the r/legaladvice case above, the scammer was inside the contractor's real email account, altered the proposal and deleted messages so the business owner never saw the exchange. The email address was identical.

The fix costs a phone call. A commenter who handles business payments described the control that took their losses to nothing: call a trusted number, speak to someone other than the person who sent the instructions, then send a small test payment before the full amount. "Yes, it is a lot of administrative work, but our fraud has been zero since we started it."

Write that into your process as a rule with no exceptions: bank details change only after a callback, logged with the date and the name of the person confirmed.

## Gate 5: an invoice that matches scope, change orders and retainage

Pay against the subcontract, not against the invoice. Before approval, the invoice should reconcile to three things: the percentage of scope actually complete, any signed change orders, and the retainage you are holding.

This is where a clean bid process pays off months later. If every sub priced the same scope sheet, the invoice can be checked line by line, which is the point of [collecting bids from subcontractors](https://www.pavadotech.com/blog/how-to-collect-bids-from-subcontractors) against a single scope. Unsigned extras belong in a change order before they belong on an invoice, and the approach to that is in [handling change orders without losing money](https://www.pavadotech.com/blog/how-to-handle-change-orders-without-losing-money).

Retainage now has legal limits in more places than most contractors assume. California's SB 61, [summarized by Buchalter](https://www.buchalter.com/insights/effective-january-1-2026-california-sb-61-caps-retention-at-5-on-private-construction-projects/), says "no more than 5% of any progress payment may be withheld by owners, contractors, or subcontractors," with total retention capped at 5% of the contract price. It applies to contracts signed on or after January 1, 2026, and residential projects are excluded unless they are mixed use or exceed four stories. On a covered $12,000 draw, that is $600 of retention at most.

Releasing retention runs on its own clock. California Civil Code section 8814 requires a direct contractor to pay each sub its share of a retention payment [within 10 days of receiving it](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8814), and section 8818 sets the penalty for missing that at [2% per month](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8818) on the amount wrongfully withheld, plus attorney's fees. Ontario builders have their own version of the same problem in the annual holdback release, covered in the [subcontractor software guide](https://www.pavadotech.com/blog/subcontractor-management-software-for-small-builders).

Most small GCs we talk to keep the W-9 in email, the certificate in a folder, the waivers in a drawer and the payment in QuickBooks. We build the sub record so all six gates sit on one screen and a missing document holds the payment automatically, instead of surfacing at audit or in a lien notice.

## Gate 6: a pay date inside the legal window

Once the owner pays you, the clock is often set by statute rather than by your subcontract. Two of the largest construction states make the point:

| State | Deadline to pay the sub | Penalty | Most you can withhold in a dispute |
| --- | --- | --- | --- |
| California | Within 7 days of receiving each progress payment ([B&P Code 7108.5](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=7108.5)) | 2% of the amount due per month, plus attorney's fees to the prevailing party | 150% of the disputed amount |
| Texas | Within 7 days of receiving the owner's payment ([Property Code 28.002](https://texas.public.law/statutes/tex._prop._code_section_28.002)) | Interest at 1.5% per month ([28.004](https://texas.public.law/statutes/tex._prop._code_section_28.004)) | 110% of the difference in dispute on detached homes up to quadruplexes ([28.003](https://texas.public.law/statutes/tex._prop._code_section_28.003)) |

On that $12,000 draw, a month late costs $240 in California penalty or $180 in Texas interest, before anyone has picked up a phone. The dispute limits matter just as much: if a sub's work is $2,000 short of what they billed, California lets you hold back no more than $3,000, not the whole payment.

In Canada, Ontario's Construction Act runs a 28 day, then 7 day cascade: the owner pays the contractor within 28 days of a proper invoice, and the contractor then has 7 days to pay its subs, a structure the parties [cannot contract out of](https://www.mannlawyers.com/resources/construction-act-prompt-payment-provisions/). The wider Canadian picture, including Alberta and British Columbia, is in the [subcontractor management software guide](https://www.pavadotech.com/blog/subcontractor-management-software-for-small-builders).

### Pay-when-paid versus pay-if-paid

These two clauses sound alike and do opposite things. Pay-when-paid is about timing: you pay the sub within a set period after the owner pays you. Pay-if-paid is about risk: the owner paying you is a condition of your obligation, so if the owner never pays, the sub does not get paid either.

Courts in many states will not enforce the second one. [Siteline lists](https://www.siteline.com/blog/pay-if-paid-vs-pay-when-paid-what-you-need-to-know/) California, Delaware, Massachusetts, New York, North Carolina, South Carolina, Virginia and Wisconsin as jurisdictions where pay-if-paid is unenforceable, with Virginia's reform taking effect in January 2023. Indiana, Kansas, Montana, Ohio and Utah let the clause govern payment between the parties but protect the sub's lien rights. And under a pay-when-paid clause, Siteline notes, "even if the owner never pays, the GC still owes you the money, usually within a 'reasonable' time frame."

The practical read for a small GC: a pay-when-paid clause buys you time, not immunity. A pressure washing sub in r/Contractor who was [owed $2,100 three months after the job](https://www.reddit.com/r/Contractor/comments/1ht2f5q/homeowner_wont_pay_gc_so_im_not_getting_paid/), because the homeowner refused to pay the construction company, was told by the top reply: "Just because he was stiffed doesn't mean he gets to do it to the companies he hired."

## What subs say about contractors who pay late

They stop bidding your work, they price the delay in, and they show up for someone else first. That is the consistent picture across every sub-side thread we read.

In a [r/ConstructionManagers thread on late payments](https://www.reddit.com/r/ConstructionManagers/comments/1hagmuh/late_payments_to_subs/) started by a PM at a firm doing $200 to $600 million a year, the top reply came from a sub: "60-90 days is typical for pay when paid contracts. If you are constantly going over that threshold then it becomes a problem and I stop bidding your work." Another sub was shorter: "You get two chances. Late twice no more bids." A third wrote, "I wish there was a way to see which GCs paid consistently late like this," and another quoted the line he now uses with his own clients: "I am not your bank."

The GCs who pay fast describe the payoff in terms of labour, not goodwill. One said his company pays subs out as soon as the super and PM sign off on a completed scope, "because they will keep bidding our work, and showing up to our jobs first before other contractors because they know as soon as the jobs done they'll get paid." In a [r/Construction thread](https://www.reddit.com/r/Construction/comments/15aq8bg/contractors_how_quickly_do_you_pay_invoices_subs/), a contractor who pays within about five days put it simply: "I want my subs to want to work with me. I want them to answer the phone when I call."

Small subs increasingly refuse the terms outright. One estimator on a [$7,700 job](https://www.reddit.com/r/estimators/comments/1cdjtfh/payment_terms_as_a_sub/) had quoted a 50% materials deposit and net 30, then got a subcontract reading "within 7 days of the owner paying the GC." Replies ranged from crossing it out and initialling the change to "We always refuse paid when paid. Has been a deal breaker a few times." A gutter sub in r/Contractor, [owed $8,427.11 across three jobs](https://www.reddit.com/r/Contractor/comments/1o0bdxh/gc_hasnt_paid_what_do_i_do/) for a roofing contractor, got this from another trade: "I no longer accept work from GCs unless they pay 100% up front."

In a tight labour market that is the real cost of slow pay. It shows up as the sub who is always booked when you call, not as a line on a statement. Rabbet's [2025 Construction Payments Report](https://rabbet.com/reports/construction-payments-2025) found the same behaviour one tier up: 88% of general contractors surveyed had declined to bid work in the past year because of an owner's slow-pay reputation.

## The early-pay discount: when paying faster makes you money

If you have the cash, offering subs an early-pay option can be one of the best returns in the business. One GC in the r/ConstructionManagers thread said his company pays subs on net 30 and also offers "an immediate pay option for 5% discount on invoices."

Run the numbers on that $12,000 draw. The sub takes $11,400 today instead of $12,000 in 30 days. You keep $600. Because the sub is giving up 5% to be paid a month early, the equivalent annual rate is about 64%. No other use of short-term cash in a contracting business pays like that, and the sub chooses it, so it builds goodwill instead of costing it.

Two conditions. The discount has to be optional and written into the subcontract, so nobody feels squeezed. And it only works if your own receivables are healthy, which is a cash flow question first. If the float is what keeps you solvent, fix that before you offer anything, starting with [contractor cash flow management](https://www.pavadotech.com/blog/contractor-cash-flow-management) and a draw structure that follows the [progress payment schedule](https://www.pavadotech.com/blog/progress-payment-schedule) rules.

## A pay run that works for a small contractor

Pick one pay day and publish the cut-off. The residential GCs in these threads who get the least grief from subs all run a version of the same rhythm:

- **Weekly, for small scopes.** One r/GeneralContractor GC doing residential work pays subs in full on the Friday of the week the job is finished. His view: "if a sub can't cover the cost of the job up front, then they are probably not running a very good business."
- **Twice monthly, for longer jobs.** A contractor in r/Construction has subs invoice on the 1st and 15th for the prior two weeks. When the client pays, the subs are paid. "Subs are always happy except when they do not meet cut off."
- **Monthly, on commercial draws.** A GC with 35 to 40 employees has subs submit pay applications on the 20th, bills the owner on the 25th, and releases payments within days of the owner's money arriving. Each payment has to be released individually, which is what lets the PM hold a sub who is four weeks behind.

Whatever cadence you choose, the invoice cut-off is what makes it predictable. A sub who knows Tuesday's invoice means Friday's ACH will chase you far less than one who is paid whenever you get to the pile.

## The release checklist

Run this for every sub payment. Anything unticked holds the payment, not the job.

1. **W-9 or business number on file**, name and TIN matching what you will report.
2. **Insurance certificate current today**, general liability and workers comp, with the expiry checked on the payment date.
3. **Conditional lien waiver received** for this amount, on the statutory form if your state has one.
4. **Bank details unchanged**, or changed only after a logged callback to a number you already had.
5. **Invoice reconciled** to scope complete, signed change orders and retainage within any legal cap.
6. **Pay date inside the statutory window** for your state, and inside the subcontract terms.
7. **Payment sent by standard ACH** unless there is a documented reason to use something else.
8. **Unconditional lien waiver collected** once the payment clears, and filed against the payment.
9. **Year-to-date total updated** for that sub, so 1099-NEC or T5018 reporting is a report, not a project.

If you have employees as well as subs, remember that payroll runs on its own tax calendar, and the two should never share a bank account shortcut. The employee side is covered in [how to run payroll for a small contracting business](https://www.pavadotech.com/blog/how-to-run-payroll-for-a-small-contracting-business).

## Where the system should live

Under about ten active subs, a spreadsheet plus a bill pay tool can hold all nine checklist items, provided one person owns it. Past that, the failure is always the same: the documents live in one place and the payment button lives in another, so the payment goes out while the certificate is expired or the waiver is still in someone's inbox.

The fix is structural. Put the sub record, the documents with their expiry dates, the waivers, the bank verification log and the payment approval on the same screen, so a red field blocks the payment by itself. That is what we build in a [custom CRM for contractors](https://www.pavadotech.com/crm), wired into the accounting and bill pay tools you already use, rather than asking your office to remember nine things every Friday.

## Sources

- [IRS, Instructions for Forms 1099-MISC and 1099-NEC](https://www.irs.gov/instructions/i1099mec): $2,000 threshold, card payment exclusion, January 31 due date.
- [IRS, Backup withholding](https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding), [Information return penalties](https://www.irs.gov/payments/information-return-penalties), [TIN Matching](https://www.irs.gov/tax-professionals/taxpayer-identification-number-tin-matching).
- [CRA, T5018 slip](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t5018-slip-statement-contract-payments.html).
- [AFP 2026 Payments Fraud and Control Survey](https://www.financialprofessionals.org/about/learn-more/press-releases/Details/over-75-percent-of-us-firms-experienced-payments-fraud-in-2025-while-ai-adoption-for-fraud-mitigation-lags), 465 treasury practitioners, January 2026.
- [FBI IC3 2025 Internet Crime Report](https://www.ic3.gov/AnnualReport/Reports/2025_IC3Report.pdf).
- [Nacha on the AFP 2022 Payments Cost Benchmarking Survey](https://www.nacha.org/news/ach-costs-are-fraction-check-costs-businesses-afp-survey-shows).
- Pricing pages read September 2026: [QuickBooks Bill Pay](https://quickbooks.intuit.com/bill-pay/), [Melio](https://melio.com/pricing/), [BILL](https://www.bill.com/pricing), [Interac e-Transfer for Business](https://www.interac.ca/en/payments/business/send-receive-money-with-interac-e-transfer-for-business/).
- California [B&P Code 7108.5](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=7108.5), Civil Code [8132](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8132), [8134](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8134), [8814](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8814), [8818](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=8818); [Buchalter on SB 61](https://www.buchalter.com/insights/effective-january-1-2026-california-sb-61-caps-retention-at-5-on-private-construction-projects/).
- Texas Property Code [28.002](https://texas.public.law/statutes/tex._prop._code_section_28.002), [28.003](https://texas.public.law/statutes/tex._prop._code_section_28.003), [28.004](https://texas.public.law/statutes/tex._prop._code_section_28.004).
- [Levelset, 12 states with required lien waiver forms](https://www.levelset.com/blog/lien-waivers-12-states-with-required-forms/); [Siteline, pay-if-paid vs pay-when-paid](https://www.siteline.com/blog/pay-if-paid-vs-pay-when-paid-what-you-need-to-know/); [Rabbet 2025 Construction Payments Report](https://rabbet.com/reports/construction-payments-2025).
- Reddit threads: [r/GeneralContractor, how do I pay subcontractors](https://www.reddit.com/r/GeneralContractor/comments/1ffyoc5/how_do_i_pay_subcontractors/); [r/GeneralContractor, Zelle, check or ACH](https://www.reddit.com/r/GeneralContractor/comments/1g893x1/how_do_yall_pay_your_subs_zelle_check_cash_other/); [r/ConstructionManagers, late payments to subs](https://www.reddit.com/r/ConstructionManagers/comments/1hagmuh/late_payments_to_subs/); [r/tax, missing W-9s](https://www.reddit.com/r/tax/comments/1i31vn2/new_business_owner_here_paid_subcontractors_all/); [r/legaladvice, hacked email ACH](https://www.reddit.com/r/legaladvice/comments/15rgofj/someone_hacked_our_contractors_email_and_scammed/).

## FAQ

### What is the best way to pay a subcontractor?

Standard ACH through a bill pay tool that syncs to your books, sent only after the paperwork gates clear. QuickBooks Bill Pay lists standard ACH at no per-payment fee, Melio charges $0.50 per ACH after its free monthly allowance, and BILL charges $0.59. A mailed check runs $1.50 to $1.99 through those same tools, and AFP puts the median all-in cost of issuing a check at $2.01 to $4.00.

### Can I pay subcontractors with Zelle or Venmo?

You can, but it is the weakest rail for this job. Bank limits vary, and one general contractor on Reddit saw his Zelle limit drop from $7,500 a day to $1,000 after switching banks. There is no invoice or remittance data attached, and an accountant in the same thread said plainly that accountants hate Zelle and Venmo for this and to use ACH instead.

### Do I need to send a 1099 to a subcontractor in 2026?

For payments made in 2026, the IRS threshold for Form 1099-NEC is $2,000 per payee for the year, up from $600, and it may be adjusted for inflation starting in 2027. The form is due January 31. Payments to corporations are generally exempt. Collect the W-9 before the first payment anyway, because a sub under $2,000 today is often over it by the third job.

### Do I file a 1099-NEC if I paid a subcontractor by credit card?

IRS instructions say payments made with a credit card or payment card, and third party network transactions, are reported on Form 1099-K by the payment settlement entity and are not subject to 1099-NEC reporting. If a bill pay platform charges your card but the sub receives a bank transfer, ask your accountant how that platform's payments should be treated before you skip the 1099.

### Should I get a lien waiver every time I pay a subcontractor?

Yes, on any job where the sub or its suppliers have lien rights. Collect a conditional waiver with the invoice, pay, then collect an unconditional waiver once the payment has cleared. Twelve states prescribe statutory waiver forms, and California's unconditional form warns the signer that it is enforceable even if they have not been paid, which is exactly why subs will not sign one early.

### How soon do I have to pay a subcontractor after the owner pays me?

It depends on the state and the contract, and many states set a hard number. California requires payment within seven days of receiving each progress payment, with a 2% per month penalty. Texas also requires payment within seven days of receiving the owner's payment, with interest at 1.5% per month. Ontario's Construction Act gives a contractor seven days to pay its subs after the owner pays it.

### Is a pay-if-paid clause legal?

It depends on the state. Pay-if-paid makes the owner's payment a condition of your obligation, so if the owner never pays, neither do you. California, Delaware, Massachusetts, New York, North Carolina, South Carolina, Virginia and Wisconsin treat those clauses as unenforceable. Pay-when-paid is a timing clause in most places, and you still owe the sub within a reasonable time even if the owner never pays.

### Can I hold retainage from my subcontractors?

Usually, but the amount and the release clock are increasingly set by law. California's SB 61 caps retention at 5% of each payment and 5% of the contract price for contracts signed on or after January 1, 2026, with most residential work excluded unless it is mixed use or over four stories. Once you receive retention, California gives you 10 days to pay each sub its share.

### Is it okay to pay a subcontractor in cash?

Only with a signed receipt, and even then it is the worst option for you. Cash leaves no bank record if the sub later says they were never paid, cannot be tied to a lien waiver without extra paperwork, and still counts toward the 1099-NEC threshold. In one Reddit thread, a contractor keeps cash as a last resort and another warns that some subs will claim they never received payment.