Contractor Payment Terms Ontario 2026

Why Ontario contractor payment terms changed in 2026

If you are a contractor in Ontario, the rules around getting paid are now stricter than they have ever been. As of January 1, 2026, amendments to Ontario's Construction Act make prompt payment a legal obligation, not a polite request.

Under the new rules, owners must pay contractors within 28 days of receiving a proper invoice. Contractors must pay subcontractors within 7 days of getting paid. Subcontractors have another 7 days to pay their own sub-subs. The chain runs all the way down.

This is not a guideline. It is enforceable through statutory adjudication, with interest accruing on late amounts.

The 28 day rule explained

The clock starts when the owner receives a "proper invoice" from the contractor. A proper invoice has to include:

Contractor name and address
The date the invoice was issued
The period during which the services or materials were provided
A description of the work
The amount payable
Authorization name (if required by contract)
Payment terms

If your invoice is missing any of those items, the owner has 7 days to send written notice telling you what is wrong. If they do not, the invoice is automatically deemed proper and the 28 day clock keeps running.

Practical translation: a sloppy invoice gives the owner an excuse to delay. A clean invoice does not.

The 7 day cascade for subcontractors

Once the contractor receives payment from the owner, the contractor has 7 calendar days to pay each subcontractor whose work was included in that invoice.

The same 7 day rule then applies down the chain. Sub to sub-sub. Sub-sub to supplier. Each tier has 7 days from receiving payment to pay the next tier.

This is the part most general contractors are still adjusting to. Holding subs for 60 to 90 days while you "manage cash flow" is no longer legal in Ontario.

Notice of non-payment (the legal way to dispute)

What happens if you cannot pay a sub because the owner is shorting you? You have to tell the sub in writing within 7 days using a "notice of non-payment." That notice must:

Identify the amount being withheld
Explain why it is being withheld
Confirm that you have undertaken adjudication if there is a dispute

Without that notice, you are simply late. The sub can file for adjudication or preserve a lien against the project.

Standard residential payment terms in Ontario

Most of the Construction Act prompt payment regime applies to commercial work and to public sector projects. For straight residential renos, smaller jobs, and direct homeowner contracts, you control your own payment terms in the contract.

Industry-typical residential terms in 2026 look like this:

Job size	Typical structure
Under $1,500	Pay on completion
$1,500 to $10,000	25 to 30 percent deposit, balance on completion
$10,000 to $50,000	Deposit + 1 or 2 progress payments + final
Over $50,000	Deposit + monthly progress draws + holdback

For direct homeowner contracts, Ontario's Consumer Protection Act has specific rules around deposits and cancellation rights. Always check the current regulations on Ontario.ca before locking in your deposit structure on residential work.

Net 7 vs Net 14 vs Net 30

Net X means the customer has X days to pay after receiving the invoice. Lower numbers are better for your cash flow.

Net 7: aggressive, residential standard. Most homeowners pay immediately if you make it easy.
Net 14: middle ground. Used for repeat residential customers and small commercial.
Net 30: commercial and B2B standard. Net 30 means you finance the job for a month.
Net 60 or 90: stop. You are now a bank, not a contractor.

If you do commercial work, Net 30 is often non-negotiable. Build the cost of carrying that float into your price.

Five clauses every contract should have

These are the clauses that move payment from "hopefully" to "enforceable":

1. Late payment interest

A standard clause is 18 to 24 percent annualized (1.5 to 2 percent per month) on overdue amounts. Most contractors never collect this, but having it in the contract gives you a real lever in adjudication or small claims court.

2. Stop work clause

If a progress payment is more than X days late, you have the right to stop work without breach. Without this clause, walking off site exposes you to a counter-claim.

3. Material price escalation

If material costs rise more than 5 percent between contract signing and order, the contractor may pass the increase through. This clause saved a lot of contractors during the 2022 to 2024 lumber and steel volatility.

4. Change orders in writing

No verbal change orders. Every scope change requires a signed change order that includes price and timeline impact before work begins.

5. Lien rights notice

A short paragraph confirming that the contractor preserves all rights under the Construction Act, including the right to file a lien within 60 days of last work performed.

When to file a construction lien

In Ontario, you have 60 days from the date you last supplied services or materials to preserve a lien. After that window closes, the right is gone for that project.

A lien is registered against the property title. It does not collect money on its own, but it makes the property impossible to sell or refinance until the lien is resolved. Most owners pay within days of receiving a lien notice from a lawyer.

Lien work generally costs $1,500 to $4,000 in legal fees. Worth it for any unpaid balance over $5,000. Below that, small claims court is faster and cheaper.

What this means in practice

The combination of the 2026 prompt payment rules and a tighter contract is the difference between waiting 90 days for payment and waiting 28. For a contractor doing $400,000 a year in commercial work, cutting 60 days off your average payment cycle frees up roughly $65,000 in working capital.

Most of the work is upstream: a clean proper invoice, signed contracts with the five clauses above, and a system that fires reminders the day a payment becomes due. Without that system, even the new law will not help you.

The full text of the rules is available in the Construction Act of Ontario on Ontario.ca.

Join 50 contractors getting early access to Grizzli.