Security of Payment: How to protect your trade business and get paid faster

Cash flow is the lifeblood of every trade and construction business. Whether you're a sole trader on the tools or managing a crew across multiple sites, getting paid on time for the work you've done is critical. Yet too often, contractors and subcontractors face delays, disputes, or silence when chasing money owed.

In construction, the difference between being paid in weeks or waiting years can make or break your business.

That's where Australia's security of payment legislation steps in. Each state and territory has its own version of this legislation. While the fine print differs, the big picture is the same: to give contractors, subcontractors, and suppliers a fast and fair way to get paid, without having to slog it out in lengthy court battles.

Being familiar with the security of payment legislation and how it can be applied to protect your rights significantly reduces your legal and cashflow risk.

In this article, we'll look at three key parts of the regime that every trade and construction business should understand:

1. Payment claims: how you kick off the process of getting paid.
2. Payment schedules: how the other party must respond (and what happens if they don't).
3. Adjudication: the fast-track dispute resolution process.

Important note: while the framework is similar across Australia, each state and territory has its own rules, deadlines, and requirements. Always seek advice from a solicitor before taking action to make sure you comply with the right law in your state.

What Is a Payment Claim?

A payment claim is your formal demand for payment under the security of payment legislation. Think of it as more than just an invoice. It's a legally recognised claim that triggers strict obligations on the person who receives it.

To be valid, a payment claim must:

1. Identify the work (or goods/services) you've provided.
2. State the amount you're claiming (the "claimed amount").
3. Be served on the other party in the required way and within the time limits set out by the legislation.
4. In some states, include a statement that it is made under the relevant security of payment legislation.

A payment claim can usually be made monthly, or at other times specified in your contract. Importantly, even if your contract is silent, the legislation often gives you a right to make claims anyway.

Why it matters: once you serve a valid payment claim, the ball is in the other party's court. They can't just ignore it or delay indefinitely.

What Is a Payment Schedule?

After receiving your payment claim, the other party must provide a payment schedule. This is their formal written response.

The rules vary slightly across jurisdictions, but in general:

1. The payment schedule must identify the payment claim it relates to.
2. It must state the amount they propose to pay (the "scheduled amount").
3. If the scheduled amount is less than what you claimed, they must explain why. For example, defects, incomplete work, or disputed variations.
4. It must be served within strict time limits (often 10-15 business days).

If a recipient of a payment claim fails to provide a payment schedule within the required timeframe, serious consequences follow:

1. In many states, they become liable to pay the full claimed amount, even if they had legitimate reasons for withholding some or all of it.
2. The party which issued the payment claim may be entitled to recover the debt as a statutory debt in court, often with limited grounds for the other party to defend.

Key takeaway: if you're on the receiving end of a payment claim, you must respond with a payment schedule. Ignoring it is the fastest way to lose the dispute before it even starts.

What Is Adjudication?

Adjudication is a fast-track dispute resolution process designed specifically for the construction industry. It applies whether there is a dispute between a party who has issued a payment claim and a party who has issued a payment schedule in response.

Here's how it works:

1. Application: If you receive a payment schedule for less than your claim, or no schedule at all, you can apply for adjudication. You usually have a short window (often 10-15 business days) to lodge your application with an adjudicator.
2. Response: The other party then has a limited time to lodge their adjudication response, setting out their reasons for withholding payment of any amounts claimed in the payment claim.
3. Determination: An independent adjudicator (often a construction lawyer, engineer, or industry expert) is appointed. They review the documents, consider the arguments, and make a binding determination, usually within a few weeks.
4. Outcome: The adjudicator decides how much (if any) is payable. That decision is enforceable like a court judgment, meaning you can take steps to recover the money if it's not paid.

Adjudication is quick and cost-effective. It's not about dragging parties through years of litigation; it's about keeping cash flowing through the industry. That said, an adjudication decision is an interim decision only. If a payment is made pursuant to an adjudication decision, the paying party can later argue, during any subsequent litigation about the work, that the amount should not have been payable under the construction contract.

Why the System Matters

The security of payment system provides a fast and cost-effective alternative compared to court proceedings. Instead of contractors having to chase payment endlessly, the law forces principals and head contractors to act promptly and justify any withholding of money.

For subcontractors and smaller trade businesses, this can be a game-changer:

1. Faster payments: The system is designed to resolve disputes in weeks, not years.
2. Greater leverage: If the other side doesn't comply with the strict rules, you may get paid by default.
3. Cash flow protection: You don't have to wait for a major dispute to be resolved in court before you see any money.

But there's a flip side: strict compliance is required. Miss a deadline or fail to comply with a requirement under the legislation, and your rights can vanish. For example, serving a payment claim late, or failing to lodge for adjudication within the statutory timeframe, can mean you lose the opportunity altogether.

Common Pitfalls to Avoid

1. Poor paperwork: Vague or incomplete payment claims are easily knocked back. Be precise about what work you did and when. It is not enough to say that the other side knows what work you have performed.
2. Missing deadlines: The legislation is unforgiving. If you're even a day late with your adjudication application, you will be unable to proceed.
3. Differing rules in each state: Each state has its own version of the law. The basics are the same, but the fine print differs (for example, the timeframes for responses). Don't assume the rules in your state are the same as in other states.
4. Thinking it's optional: Serving a payment schedule isn't a courtesy, it's a legal requirement. Ignore it and you could be liable for the full claim.

Practical Tips for Trade and Construction Businesses

1. Get your contracts in order. A clear written contract makes payment claims and adjudication much smoother.
2. Keep detailed records. Site diaries, delivery dockets, progress reports, and signed variations all support your claims.
3. Train your team. Make sure your office staff and project managers know how to recognise a payment claim or schedule.
4. Don't wait too long. Act quickly when disputes arise; the system rewards those who move within the strict timeframes.
5. Seek advice early. A quick call to your solicitor can make the difference between getting paid and missing out.

Final Word

Australia's security of payment laws are powerful tools for trade and construction businesses. They give you the right to demand payment, force the other side to respond, and provide a fast pathway to resolve disputes through adjudication.
Handled properly, these tools can protect your cash flow and give you the confidence to keep moving from one project to the next.
But remember: the details differ across states and territories, and the deadlines are strict. Always get professional advice before making or responding to a claim. That way, you'll know you're using the system to its full advantage and keeping your business strong, stable, and paid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.