Build a Working Capital Strategy that Strengthens Your Financial Future:
Glossary
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Allowance

Allowance

What is an Allowance?

Funds set aside to cover a known cost of an unknown amount. For example, an owner wants to use tile flooring in their front entryway so the contractor budgets for a standard tile material that costs $5 per sq/ft. The owner ultimately selects an $8 per sq/ft option and agrees to pay the $3 per sq/ft amount by which the actual tile exceeded the allowance.

More In-depth Definition of Allowance

A specified sum of money allocated in a construction contract for items or work that cannot be precisely determined at the time of signing. It acts as a financial placeholder for potential costs related to fixtures, finishes, or unforeseen conditions. Actual expenses are adjusted against this allowance, with any differences settled between the contractor and the client. This mechanism helps manage uncertainty and avoid disputes.

Example of an Allowance

$5,000 set aside in a contract for fixtures.