How the Texas Prompt Payment Act Protects You When Contractors Don't Pay Suppliers
What the Texas Prompt Payment Act Does
The Texas Prompt Payment Act is a state law that requires contractors and project owners to pay their suppliers and subcontractors within a set number of days—usually 7 days for suppliers and 7 days for subcontractors. If they don't pay on time, they owe you interest on the late amount. The law applies to construction projects, but also to other work where one business hires another to do a job or supply materials.
The law exists because construction and service work often involves a chain: the project owner pays the general contractor, who pays the subcontractors, who pay their suppliers. When someone in that chain holds onto money, everyone below them gets squeezed. The Prompt Payment Act forces money to move down the chain faster, so you're not waiting months to be paid for work you've already done or materials you've already delivered.
You don't have to file anything with the state to use this law. It applies automatically to most construction contracts in Texas. If you're owed money and the person who owes it is late, you can calculate what they owe you in interest and demand it, or take them to court if they refuse.
Key Takeaways
- Contractors and suppliers must pay subcontractors within 7 days of receiving payment themselves, or within 7 days of the invoice date if they haven't been paid yet.
- Late payments trigger interest at 1.5% per month (18% per year) on the unpaid balance, calculated from the day payment was due.
- The law covers most construction work in Texas but has exceptions for certain federal projects and contracts under a certain dollar amount.
- You can demand the late payment plus interest in writing, and if the contractor refuses, you can file a lawsuit in small claims court or district court depending on the amount owed.
- The law does not require a written contract—it applies to oral agreements and purchase orders as long as the work or materials are for a construction project.
When the Prompt Payment Act Applies to Your Invoice
The law covers most construction-related work and materials in Texas, but not every situation. It applies if you supplied materials or labor to a construction project, or if you're a subcontractor hired by a general contractor or another subcontractor. It covers residential, commercial, and industrial projects.
The law does not apply to federal projects (those are covered by a different federal law), to contracts where the total project cost is under a certain threshold set by the state, or to some utility work. If you're unsure whether your contract falls under the law, look at the contract itself—it should say whether the Prompt Payment Act applies, or you can ask the contractor who hired you.
The law also does not override a contract that says something different. If your contract says you'll be paid in 30 days, and both you and the contractor signed it, that contract controls—the 7-day rule doesn't apply. But if there's no written contract, or the contract doesn't say when you'll be paid, the 7-day rule kicks in automatically.
How the 7-Day Payment Clock Works
The clock starts when the contractor receives payment from the project owner, or when they receive your invoice—whichever comes later. So if you invoice on Monday and they get paid on Friday, the 7 days starts on Friday. If they get paid on Monday and you invoice on Wednesday, the 7 days starts on Wednesday.
The contractor must pay you by the end of the 7th day. If day 7 falls on a weekend or holiday, the deadline moves to the next business day. If they don't pay by then, interest starts accruing the day after the deadline at 1.5% per month on the unpaid balance.
The contractor can delay the clock if they have a legitimate reason to withhold payment—for example, if your work is defective or incomplete. But they have to notify you in writing within 7 days of receiving your invoice, explaining what's wrong and how much they're withholding. If they don't send that notice, they can't use the defect as an excuse to delay payment.
Calculating Interest and What You're Owed
Interest accrues at 1.5% per month (18% per year) on the unpaid balance, starting the day after the payment deadline passes. You calculate it from that day until the day they actually pay you. For example, if $10,000 was due on a Friday and they pay you 30 days later, you're owed $10,000 plus interest for 30 days at 1.5% per month—roughly $150.
You can demand this interest in writing by sending the contractor an invoice that breaks down the original amount, the due date, the date they paid (or the current date if they still haven't paid), and the interest owed. Keep a copy for your records. If they refuse to pay the interest, you can include it in a lawsuit.
Some contractors will argue that the interest is too high or unfair. Texas courts have upheld the 1.5% monthly rate as reasonable, so you have the law on your side. However, if the contractor disputes the amount, you may need to prove the original invoice amount and the dates involved, so keep all your paperwork.
What to Do If a Contractor Doesn't Pay on Time
First, send a written demand for payment. Email, text, or a letter all count as written notice. State the original invoice amount, the due date, the current date, and the interest owed. Give them a reasonable deadline to respond—usually 10 to 14 days. Keep a copy of everything you send.
If they don't respond or refuse to pay, you have the right to file a lawsuit. For amounts under $20,000, you can file in small claims court, which is faster and cheaper than district court and doesn't require a lawyer. For larger amounts, you'll file in district court. You'll need to bring your invoice, proof that you sent it, proof of the payment deadline, and documentation of any interest owed.
Before you sue, consider whether the contractor is worth suing—if they're out of business or have no money, a judgment won't help you. You can also report the late payment to the Texas Attorney General's office if you believe the contractor is breaking the law repeatedly, though this won't get you paid directly.
Exceptions and Limits to the Prompt Payment Act
The law does not apply to federal projects, which are governed by the federal Miller Act instead. It also does not apply to contracts under a certain dollar amount, which the state updates periodically. Some utility work and certain government contracts have different rules.
The law also does not protect you if you fail to follow the contract terms—for example, if you're supposed to provide a lien waiver and you don't, the contractor may be able to withhold payment. It also does not apply if you're an employee of the contractor (the law covers independent contractors and suppliers, not W-2 employees).
If the contractor files for bankruptcy, the Prompt Payment Act still applies, but you'll be treated as a creditor in the bankruptcy case. You may not recover the full amount owed, depending on the contractor's assets and other debts.
Frequently Asked Questions
Do I need a written contract for the Prompt Payment Act to apply?
No. The law applies to oral agreements, emails, text messages, and purchase orders. As long as you can prove you did the work or supplied the materials and the contractor owes you money, the 7-day rule applies—unless the contract itself says something different.
What if the contractor says they haven't been paid by the project owner yet?
The 7-day clock still starts when they receive your invoice, even if they haven't been paid. However, some contracts allow the contractor to delay payment to you until they receive payment from the owner. If your contract has this clause, it overrides the Prompt Payment Act. Check your contract before you invoice.
Can I charge interest on top of the Prompt Payment Act interest?
No. The Prompt Payment Act sets the interest rate at 1.5% per month, and that's the only interest you can claim under the law. If your contract says you can charge a different rate, that rate applies instead—but you can't charge both.
What if the contractor only pays part of my invoice?
Interest accrues only on the unpaid portion. If they owe you $10,000 and pay $6,000 on time but hold $4,000, interest starts accruing on the $4,000 the day after the deadline. You can demand interest on the unpaid portion and sue for the balance if they don't pay.
How long do I have to sue for a late payment?
You have four years from the date the payment was due to file a lawsuit in Texas. However, don't wait that long—the longer you wait, the harder it is to prove your case and the less likely you are to collect. File within a year if you can.