Contractor deposits and payment terms

Here is the thing almost nobody says out loud: if you do the work first and get paid later, you are a lender. You have extended credit — unsecured, interest-free, to someone whose finances you know nothing about, on terms you did not negotiate.

Most contractors have never thought about it that way, which is why so many of them are quietly running a small bank on the side while wondering where the money went.

Why a deposit is not rude

New contractors are shy about deposits. They shouldn't be. A deposit is completely standard, every established business in the trades takes one, and the customer has almost certainly paid one before.

A deposit does three things at once. It funds your materials, so you are not putting thousands of dollars of someone else's shingles on your own credit card. It commits the customer, so they do not cancel on you the morning of — a job with a deposit on it is a job that is actually happening. And it filters. A customer who will not pay any deposit on a job with real material costs is telling you something about how the final invoice is going to go, and you should listen.

How much to ask for

It depends almost entirely on how much of your own money the job requires up front.

• Small jobs, minimal materials — no deposit needed. Just get paid on completion, on site, before you leave.
• Jobs with real material cost (a water heater, a fixture package) — ask for enough to cover the materials. 30–50% is normal and nobody will blink.
• Big-ticket material-heavy jobs — roofing is the clearest case. A roof's worth of shingles arrives in the driveway before you have earned a cent. 25–50% on signing is standard and entirely defensible.
• Long jobs — a deposit plus progress payments tied to stages. See below.

Be aware that some states cap the deposit a contractor may take on residential work, and a few require specific contract language alongside it. Check your state's rules before setting a policy — this is one of the few areas where a well-meaning policy can put you on the wrong side of a licensing board.

Progress billing: the fix for long jobs

On anything running more than a couple of weeks, do not wait until the end. Agree a schedule of values before you start: a deposit, payments tied to milestones, and a final payment on completion.

Tie each stage to something visible and undeniable — "on completion of rough-in", "on completion of drywall" — not to a date, and not to a percentage that is a matter of opinion. A milestone the customer can walk over and look at is a milestone they cannot argue with.

This is the whole discipline of general contracting, and it is what separates a GC who is solvent in March from one who is waiting on three clients to pay so they can pay their subs.

Net 30 is a habit, not a law

Somewhere along the line "net 30" became the default, and most contractors adopted it without asking why. For a residential customer, there is usually no reason for it at all. They are not running an accounts-payable department. They can pay you today.

Net 7, or due on receipt, is entirely reasonable for residential work. For commercial clients and property managers, net 30 may genuinely be their process and you will not change it — but know that you are choosing to finance them for a month, and price accordingly.

Late fees you will actually enforce

State a late fee. 1.5% per month is typical, subject to your state's usury limits, and it must be on the document before the work starts — you cannot invent it at the point you are annoyed.

Two honest observations. First, most late fees are never collected; their value is that they exist and create a deadline in the customer's mind. Second, a late fee you feel awkward charging is a late fee that does nothing. If you will not enforce it, do not rely on it — rely on invoicing immediately and following up early instead.

Getting paid on the day

For most residential work, the best payment terms in the world are: now, while I am standing here.

The customer's willingness to pay is at its absolute peak in the ten minutes after you finish. They can see the work. It is fixed. They are grateful. Every hour after that, that feeling fades and the invoice becomes just another bill competing with the others.

This is why invoicing speed is not an administrative detail — it is a cash-flow strategy. An invoice handed over on site gets paid at a dramatically higher rate than one emailed on Sunday, and it is why handymen, whose jobs are small and numerous, benefit more from fast invoicing than from almost anything else they could change.

Put it in writing, every time

Deposit amount, payment schedule, terms, late fee, and what counts as "complete". All of it on the quote, before anyone starts. A term agreed in a friendly conversation in a driveway is not a term — it is a memory, and memories differ conveniently.

Our free contractor invoice template has a payment terms block on it for exactly this reason, and the rate calculator will tell you whether the number you are putting on these documents is high enough to be worth collecting.