Cash flow is the number one reason contracting businesses fail — not lack of work, but being owed money for work already done. The solution is a clear, enforced payment structure that keeps money flowing in as work progresses. Here is how to set contractor payment terms that protect you without scaring off good clients.
Why deposits are non-negotiable
A deposit serves two functions: it covers your initial material costs and it filters out clients who are not serious. A homeowner who is genuinely committed to a project will have no problem putting 25 to 50 percent down. A client who pushes back hard on a deposit is signaling that either they cannot afford the job or they do not fully commit — both are problems you want to discover before you have started work.
In many states, contractor deposit amounts are regulated. Know your state's rules — some cap deposits at a percentage of the contract value. Generally, 30 to 50 percent upfront is standard and defensible. Include the deposit amount and due date in the contract before any work begins.
Structuring milestone payments on larger jobs
For projects lasting more than a few days, a deposit-and-final structure is not enough. You should have progress payments tied to defined milestones that both parties can verify. Example structure for a bathroom remodel:
- 40% deposit due before work begins
- 25% due upon completion of rough-in work (plumbing, electrical, cement board)
- 25% due upon completion of tile work and fixtures
- 10% retained until punch list is complete and client approves
Tie each payment to a specific, observable milestone — not a date. Dates slip. Milestones are verifiable. "Rough-in complete" is something both parties can see.
Send invoices immediately — not when you get around to it
The gap between completing a milestone and sending the invoice is dead money. Invoice the same day the milestone is reached. Use invoicing software that sends a professional invoice automatically and allows online payment. Net 7 or Net 14 is standard for most home improvement work — 30-day terms are unnecessarily long for residential clients.
Include your preferred payment methods clearly on every invoice. The more payment options you offer — check, ACH, credit card, Zelle — the faster you get paid. Credit card processing fees (typically 2 to 3 percent) are often worth it for the speed and convenience.
How to handle late payments without damaging the relationship
Late payments happen even with good clients. Have a policy and enforce it consistently. A late fee of 1.5 percent per month on overdue balances is industry standard — state this in your contract and on your invoices. When a payment is overdue, follow up promptly: a friendly reminder at one day past due, a firmer follow-up at one week, a formal notice at two weeks.
Do not continue work on a job where payment milestones are overdue without resolving the outstanding balance first. Stopping work is your leverage — use it calmly and professionally. Threecus can track payment status across all your active jobs and send automatic reminders, so you are not manually chasing every invoice.
Collecting the final payment at completion
The final payment should be collected before you leave the job site on the last day. Do a walkthrough with the client, address any punch list items immediately, and collect payment before you pack up. Leaving a job with a balance outstanding dramatically reduces your likelihood of collecting — especially if a minor issue comes up after you leave that the client uses as leverage.
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