Sales · How-to

Deposits and payment terms for contractors: what to ask for and how to write it

Keep the deposit within your state’s limit and tied to real costs, bill progress payments only when a stage is finished, and make the final payment due at a walk-through with lien waivers in hand. Give any lien notice your state requires at the start, decide who pays card fees, and put every one of those terms in the contract the homeowner signs.

By Eric Smith, founder of Outfitter AI and a former general contractor · Prices checked October 4, 2026

The short version

Payment terms are part of the sale, not paperwork you sort out after; they are stage three of the contractor sales guide. A clear schedule tells the homeowner exactly what they’ll pay and when, keeps you from financing their job out of your own pocket, and protects your right to collect if something goes wrong.

• Deposit: small, legal in your state, and tied to something real like ordering materials or holding a start date.
• Progress payments: tied to finished stages of work, never just to calendar dates, and never ahead of the work.
• Final payment: due at substantial completion after a walk-through, with a written punch list for anything small left over.
• Lien rights: give whatever notice your state requires at the start, or you may lose them.
• Methods: say which you accept and who pays card fees, in writing, before work begins.

Deposits: how much you can ask for

Check your state first. Some states cap what a contractor can collect up front on home improvement work, and the cap can be lower than what owners are used to asking.

California is the best-known example. The state’s contractor board says the down payment on a home improvement or swimming pool contract can’t exceed $1,000 or 10% of the contract price, whichever is less [1]. On a $30,000 kitchen, that’s $1,000, not $3,000. On a $6,000 water heater and repipe, it’s $600. (Those job prices are examples; the rule is from the board.)

Other states have their own limits, and some have none. The FTC simply tells homeowners to try to limit the down payment and notes that some state laws cap it [2]. Look up your state’s home improvement law or ask your licensing board, and write the answer on the inside of your estimate folder.

Where you have room to choose, size the deposit to what you’ll actually spend before the first progress payment comes in.

Progress payments tied to milestones

Tie each payment to a stage the homeowner can see is done. “Rough-in inspection passed” is a milestone. “Two weeks after start” isn’t, and it starts arguments when the job runs long.

Again, check your state. California’s board says payments to a contractor can’t exceed the value of the work performed, apart from the down payment [1]. The FTC tells homeowners to make mid-project payments depend on finished amounts of work [2], so a milestone schedule is also what your customer expects to see.

Example schedules, for illustration only. Adjust to your own costs and your state’s rules:

Send each progress invoice the day the milestone is done, with a photo of the finished stage. People pay faster when they can see what they’re paying for.

Getting the final payment

Final payments slip when “done” isn’t defined. Define it in the contract and run the last day on purpose.

1. Walk the job together. Book the walk-through when you schedule the last day, not after.
2. Write the punch list on the spot. Small items go on a dated list with a finish date. They don’t hold up the whole final payment; at most, hold back a small agreed amount until they’re done.
3. Have lien waivers ready. The FTC tells homeowners not to make the final payment until they’re satisfied and to ask the contractor, each sub and each supplier for a lien release or waiver [2]. Bring them, signed, so you’re never the reason the check waits.
4. Hand over the closeout packet. Warranty registrations, permit sign-off, paint colors, product manuals.
5. Take payment at the table, by whatever method the contract lists, and send the receipt before you leave the driveway.

Final walk-through script: Before I write the final invoice, let’s walk through everything together. Point out anything that isn’t the way you pictured it, and I’ll put it on the list with a date. Once we’ve agreed on the list, the balance is due today, as in the contract.

Lien rights: the basics

A mechanic’s lien lets someone who improved a property and wasn’t paid put a claim on that property. It’s your backstop if a homeowner simply won’t pay. But lien rights are strict: they usually depend on notices given at the start and on filing deadlines after you finish, and the details vary a lot by state. Treat this as a map, not legal advice.

• Notice up front. Many states require a written lien notice early. In Minnesota, a contractor working directly for the owner who will use subcontractors or suppliers must give a pre-lien notice, either in the written contract or, without one, separately within ten days after the work is agreed upon, in the bold or capitalized form the statute sets, and a contractor who skips it doesn’t get the lien [3]. California requires a “Notice to Owner” in home improvement contracts warning that unpaid subs, suppliers or workers can file a lien [4].
• Deadlines after the work. Each state sets how long you have to record a lien and then to enforce it. Miss them and the right is gone.
• Waivers. When you’re paid, you sign a waiver for that payment; collect waivers from your own subs and suppliers too, so the homeowner isn’t exposed for a bill you owed.

Ask a construction attorney in your state to review your contract’s lien language once. It costs far less than finding out on an unpaid job that your notice was wrong.

Payment methods and card fees

Take the methods homeowners trust. The FTC advises homeowners not to pay in cash and suggests a check or credit card for smaller projects [2], and it lists contractors who only accept cash among the warning signs [2]. Offer check, bank transfer and card at minimum.

Card fees are real money on big tickets. Here is what Square, a widely used processor, lists for its free plan, as of October 2026 [5]:

Two things follow. Push bank transfer for large progress payments, and take cards in person when you can rather than keying in numbers over the phone.

Passing the fee on. If you add a surcharge for credit cards, Visa’s rules for U.S. merchants cap it at your actual processing cost or 3%, whichever is lower; you can’t surcharge Visa debit or prepaid cards; you must tell your processor at least 30 days before you start; and you must disclose the surcharge at the point of entry, at checkout and on every receipt [6]. As of Visa’s February 2024 guide, Connecticut, Maine, Massachusetts, Oklahoma and Puerto Rico prohibit surcharging entirely, and Colorado, Minnesota, New Jersey and New York set their own conditions [6]. State rules change, so confirm yours with your processor before you add a fee. Many owners skip surcharges and simply build card costs into their prices, or offer a small discount for paying by bank transfer.

Write it into the contract

None of this works unless it’s on the page the homeowner signs. Plain sentences beat legalese. These examples are starting points to adapt with your attorney, not legal wording for any particular state:

Deposit: A deposit of $1,000 is due at signing and will be used to order materials and reserve your start date. [Adjust to your state’s limit.]

Progress payments: Payments are due on completion of each stage listed below. We will send an invoice with photos when each stage is finished. Payment is due within five days of the invoice.

Final payment: The balance is due at substantial completion, after a walk-through with you. Small items on the written punch list will be finished by the date shown on that list.

Change orders: Any change to the work will be written up with its price before the work is done and added to the next scheduled payment.

Payment methods: We accept check, bank transfer and credit or debit card. Credit card payments carry a fee equal to our card processing cost, never more than 3%, shown on your invoice; bank transfers and debit cards have no fee. [Only where allowed; see the Visa rules above.]

• State-required right-to-cancel notice and forms, if you sold in the home (see running the in-home visit).
• State-required lien notice, in the size and wording your state sets.
• Your license number, business name and address.
• What happens if a payment is late: a stop-work right, and any late fee your state allows.
• Who pulls permits and who pays for them.

If cost is the hurdle for the homeowner, offering financing often solves it without changing your payment terms.

Common questions

Sources and how we compared

State rules come from California’s contractor board and the Minnesota statutes, homeowner guidance from the FTC, and fee rules from Square’s and Visa’s own pages, all opened October 4, 2026; none of it is legal advice.

1. California Contractors State License Board: Learn about home improvement contracts
2. FTC: Hiring a Contractor (consumer publication) — March 2014
3. Minnesota Statutes §514.011: Notice to owner (pre-lien notice)
4. California Contractors State License Board: Home improvement contracts, warnings and exceptions
5. Square: Understanding our fees — checked October 4, 2026
6. Visa: U.S. merchant surcharge Q&A — February 2024

Last updated October 4, 2026. Prices change; if something here is out of date, call or text (507) 628-0400 and we’ll fix it.

Related: Sales and follow-up: the full guide · How to write a contractor estimate · Offering financing to customers · Running the in-home sales visit