Utah Contractor Practice Exam

What should a contractor do in order to minimize the risk of cash flow issues?

1. Ensure upfront payments are maximized

2. Implement a payment schedule tied to project milestones

3. Request full payment before beginning work

4. Set a fixed contract amount without review

The correct answer is: Implement a payment schedule tied to project milestones

Implementing a payment schedule tied to project milestones is an effective way for a contractor to manage cash flow and minimize financial risks. This approach aligns payment with the completion of specific phases of the project, which ensures that the contractor receives funds as work progresses. It helps maintain steady cash flow, as the contractor can cover ongoing expenses and labor costs without waiting until the entire project is completed. This method also fosters a clear understanding between the contractor and the client regarding expectations and deliverables, contributing to a smoother working relationship. By tying payments to milestones, it encourages timely completion of tasks and allows for adjustments to be made, should any issues arise during the project. While maximizing upfront payments and requesting full payment before starting work can provide immediate cash flow, these methods may deter potential clients who are wary of high upfront costs. Setting a fixed contract amount without review can lead to financial strain if unforeseen circumstances arise, making it less effective in managing cash flow. Therefore, a structured payment schedule offers a balanced approach that supports both the contractor's financial health and client satisfaction.