Payment Terms for Contractors
When to Ask for Deposits

Why Payment Terms Matter

Here's a scenario every contractor has experienced: You buy $3,000 in materials on your credit card, spend a week on the job, finish the work, and then the customer takes 45 days to pay. Meanwhile, your credit card bill is due, your supplier wants payment, and your next job needs materials too.

Good payment terms prevent this cycle. They ensure you never finance someone else's home improvement project out of your own pocket.

Standard Payment Structures

Small Jobs (Under $2,000)

• Option A: 50% deposit, 50% at completion
• Option B: Payment in full upon completion

For small jobs, a 50/50 split is standard. Some contractors do payment-upon-completion for repeat customers they trust. Never do "net 30" on small residential work — you'll chase that money forever.

Medium Jobs ($2,000–$10,000)

• Recommended: 50% deposit, 25% at midpoint, 25% at completion
• Alternative: 40% deposit, 30% at rough-in, 30% at completion

The midpoint payment is key. It covers your materials and labor up to that point, so you're never deeply out of pocket. Define the midpoint clearly — "rough-in complete" or "demo and framing done" — so there's no argument about when it's due.

Large Jobs ($10,000+)

• Recommended: 33% deposit, 33% at midpoint, 33% at completion
• Alternative: 25% deposit, then progress payments at each milestone, 10% holdback until final

On large jobs, some customers push for a 10% holdback — they pay 90% through the project and hold 10% for 30 days after completion. This is common in commercial work. For residential, try to keep the holdback small or eliminate it entirely.

The Deposit Conversation

Some contractors feel awkward asking for a deposit. Don't. It's completely standard and any reasonable customer expects it. Here's how to frame it:

"To get you on the schedule, we collect a 50% deposit when you approve the estimate. That covers materials and reserves your spot. The balance is due at completion. We accept check, Zelle, or card."

If a customer pushes back on a deposit, that's a red flag. Legitimate customers understand that contractors need to buy materials and commit time.

When to Walk Away

Some customers are just bad business. Red flags include:

• "I'll pay you when I get paid."
• "Can you just start and we'll figure out payment later?"
• "My last contractor didn't charge a deposit."
• They want to pay entirely after completion with net-30 terms
• They've had "problems" with multiple previous contractors

Trust your gut. A few hundred dollars in lost revenue is better than thousands in unpaid invoices.

Making It Easy to Pay

The easier you make it to pay, the faster you get paid:

• Accept multiple payment methods. Check, Zelle, Venmo, credit card. The more options, the fewer excuses.
• Send the invoice immediately. Don't wait a week. Invoice on completion day — or even before you leave the site.
• Include a payment link. Online payment links in your invoice get paid 2-3x faster than "mail me a check."
• Set clear due dates. "Due upon completion" is better than "net 30." For final payments, "due within 7 days of completion" is reasonable.

Credit Card Fee Handling

Credit card processing costs 2.5-3.5%. You have a few options:

• Build it into your pricing. Add 3% to all estimates so you're covered regardless of payment method.
• Charge a convenience fee. "Credit card payments include a 3% processing fee." This is legal in most states.
• Offer a cash discount. "3% discount for payment by check or Zelle." Same math, better optics.

What to Do When Someone Doesn't Pay

1. Day 1-3: Friendly reminder. "Just a heads up, the final invoice is due. Let me know if you have questions."
2. Day 7: Phone call. "Wanted to check in on the payment — everything okay?"
3. Day 14: Formal written notice. "Per our agreement, payment was due on [date]. Please remit within 7 days."
4. Day 30: Final demand letter with mention of lien rights (where applicable).
5. Day 45+: File a mechanics lien or send to collections.

The Bottom Line

Good payment terms are the foundation of a healthy contracting business. Always get a deposit before starting work. Structure progress payments so you're never deeply out of pocket. Make it easy to pay. And don't be afraid to walk away from customers who resist reasonable terms. Your cash flow — and your sanity — will thank you.