# Construction draw inspections and payment timing

Canonical: https://commercialdebtadvisory.com/execution/construction-draw-inspections-and-payment-timing/
Status: Published
Publisher: Jaken Finance Group

The cash problem in a construction draw often sits between the contractor's payment date and the lender's funding date. Track the complete request-to-receipt cycle, including corrections and acceptance, then model overlapping draws. A nominally sufficient commitment can still require a temporary cash bridge if two payment cycles overlap.

The [OCC construction-disbursement discussion](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf) links advances to supporting records, inspection and controls. The event log below is an original hypothetical execution model, not a promised lender turnaround or a universal payment or retainage rule.

## Define a complete event log

Assume the first contractor application covers $300,000 of accepted work. The construction contract and loan both retain 10% for this illustration, so $270,000 is currently payable and eligible for the corresponding loan advance. The borrower has $200,000 of unrestricted cash.

| Event | Hypothetical date | What the date proves |
|---|---:|---|
| Request first submitted | Day 10 | A package was sent |
| Site inspection | Day 15 | Defined inspection occurred |
| Inspection report received | Day 17 | Evidence is available for review |
| Missing invoice corrected | Day 18 | Package becomes complete for this example |
| Lender approval | Day 25 | Stated advance accepted subject to funding process |
| Contractor payment due | Day 20 | Borrower obligation under assumed contract |
| Loan funds received | Day 30 | Cash is available |

The request was submitted 20 days before funding, but the complete-package interval was 12 days. Neither is a universal service standard. Keeping both measures helps identify whether delay came from missing evidence, inspection, lender review or transfer timing.

## Calculate the first payment bridge

The borrower owes $270,000 on day 20 and has only $200,000, creating a $70,000 temporary need. The loan's eventual $270,000 receipt on day 30 can replenish the amount advanced, subject to actual funding and use conditions.

An approved draw on day 25 is still later than the contractor's day 20 due date. Moving the approval milestone earlier does not solve the gap unless cash is actually available when required or the payment terms are validly changed.

Do not assume the contractor must accept the lender's schedule. The construction contract and loan agreement have separate parties and obligations; the responsible professionals must coordinate an accepted payment process.

## Add the next draw before concluding the bridge is sufficient

Assume a second application covers $400,000 of accepted work, with the same 10% contractual and lender retention. The current payment is $360,000 due on day 45, and loan funds arrive on day 60.

With no new permanent equity, the unfinanced cash path from the original $200,000 is:

| Event | Cash movement | Cumulative available cash |
|---|---:|---:|
| Opening | +$200,000 | $200,000 |
| First contractor payment | −$270,000 | −$70,000 |
| First loan receipt | +$270,000 | $200,000 |
| Second contractor payment | −$360,000 | −$160,000 |
| Second loan receipt | +$360,000 | $200,000 |

The peak temporary need is $160,000, not $70,000 and not the sum of $70,000 plus $160,000. If a permitted revolving bridge is used, the first borrowing can be repaid after the first draw and a larger amount borrowed for the second cycle. Fees and interest would add costs and are excluded from this timing-only exhibit.

## Keep retention out of the current cash cycle correctly

The two applications contain $70,000 of retained cost: $30,000 plus $40,000. Under the stated matching assumptions, that amount remains unpaid to the contractor and unadvanced by the lender. It is still a future project obligation and future conditional funding amount, not a saving.

If contractor and lender retention differ, the cash schedule changes. For example, a contractor payment without retention and a lender advance with retention would require additional borrower cash now. Use the actual contracts rather than carrying the 10% teaching assumption into a live request.

## Turn cycle data into an operating decision

Record the responsible party for every incomplete item and the date the next reviewer can act. An invoice correction may be resolved in parallel with inspection review, while a revised scope may require a new approval before review continues. The longest dependent path controls funding.

If the first draw slips past the second contractor payment, the borrower may need to fund both $270,000 and $360,000 before either receipt. Against $200,000 opening cash, the peak need becomes $430,000. This overlap stress is often more useful than simply adding a few days to an average turnaround estimate.

Before the next payment cycle, confirm available cash, complete-package status, expected funding date and any approved temporary source. Reconcile actual receipts and payments to the draw ledger afterward. The final schedule should explain which event releases cash and the largest amount needed before that event, rather than treating submission or approval as equivalent to funding.


## Source references
- [OCC — Commercial Real Estate Lending](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf) — Printed pages 45–46: Acquisition, Development, and Construction Credit Administration and monitoring; pages 102–103: Inspections and Disbursements · Checked 2026-10-21 · Source date / context Version 2.0 March 2022; reputation-risk references removed March 2025 · Bank supervisory context; actual inspection, lien-waiver, funding and completion conditions depend on the loan, contracts and applicable law.