How to Set Up Payment Milestones for Your Bathroom Remodel
Never pay 100% upfront—that's the cardinal rule of contractor payments. A well-structured payment schedule protects you from abandonment, incentivizes timely completion, and ensures you have leverage if quality issues arise. Here's exactly how to structure payments that protect your investment while keeping your contractor fairly compensated.
Quick Summary
Time needed
1-2 hours to negotiate
Difficulty
Moderate (requires negotiation)
Key documents
Contract + lien waivers
Why Payment Structure Matters More Than You Think
Every year, thousands of homeowners lose money to contractor abandonment, disputes, or outright fraud. The common thread? They paid too much, too soon. When a contractor has most of your money before the work is done, you lose leverage—and sometimes, you lose the contractor entirely.
A properly structured payment schedule does several critical things:
- Limits your financial exposure: If a contractor disappears, you've only paid for work actually completed.
- Creates completion incentives: Contractors are motivated to finish each phase to unlock the next payment.
- Provides quality leverage: Withholding final payment until punch list completion ensures issues get fixed.
- Protects against liens: Proper lien waiver collection prevents subcontractors from claiming against your home.
- Documents the project timeline: Payment milestones create a clear record of work progress and completion dates.
The Standard Bathroom Remodel Payment Schedule
While every project is different, this is the payment structure most reputable contractors will accept. It balances their need for cash flow with your need for protection. For a typical $25,000-$50,000 bathroom remodel, here's what to expect:
Secures your start date and covers initial material ordering. For a $35,000 project, this would be $3,500-$5,250.
Release trigger: Signed contract with detailed scope of work
Old fixtures, flooring, and finishes removed. Space cleared and ready for rough-in work.
Release trigger: Demo debris removed, space cleaned, ready for inspection
All plumbing supply/drain lines, electrical wiring, and HVAC modifications installed behind walls. This is the largest payment because it covers the most labor-intensive work.
Release trigger: Passed rough-in inspections (plumbing and electrical)
Tile installed, vanity and toilet set, shower/tub fixtures functional. Most finish materials in place.
Release trigger: Bathroom functional (can be used), major finishes complete
All punch list items complete, accessories installed, final cleaning done, all documentation received.
Release trigger: Final inspection passed, punch list signed off, warranties delivered
Step-by-Step: Setting Up Your Payment Schedule
1. Research Your State's Contractor Payment Laws
Many states regulate how much contractors can collect upfront. California, for example, limits deposits to 10% or $1,000, whichever is less, for home improvement contracts. Texas requires contractors to be bonded if they accept more than 10% upfront.
Before negotiating, know your state's rules. This gives you leverage if a contractor requests an unusually high deposit.
2. Negotiate a Reasonable Deposit
The deposit is where homeowners most often overpay. Contractors may request 30%, 40%, or even 50% upfront—especially if they sense you're eager to start. Push back firmly but politely.
Acceptable Deposit Requests
- 10-15% of total project cost
- Material cost for special-order items
- Up to 20% for very small projects
- Written in contract with clear scope
Red Flags to Watch For
- Requesting 50% or more upfront
- Cash-only payment requirements
- Unwilling to provide lien waivers
- Vague about milestone definitions
What to say: "I understand you need a deposit to secure the start date and order materials. I'm comfortable with 10-15% now, with the next payment due after demolition is complete. This is standard practice and protects both of us."
3. Define Clear Milestone Triggers
Vague milestones lead to disputes. "Rough-in complete" means different things to different people. Your contract should specify exactly what must be done—and verified—before each payment is due.
Example: Well-Defined Rough-In Milestone
"Rough-in payment of $8,750 due when ALL of the following are complete:
- All supply and drain plumbing installed per plan
- Electrical circuits installed for vanity, exhaust fan, and GFCI outlets
- Passed plumbing rough-in inspection (permit #____)
- Passed electrical rough-in inspection (permit #____)
- Waterproofing membrane installed and documented
- Homeowner walkthrough completed and signed"
Notice how inspections are included as payment triggers. This is crucial—it means you're not just taking the contractor's word that work is done correctly.
4. Establish Lien Waiver Requirements
Lien waivers are your protection against paying twice. Without them, subcontractors and suppliers can place liens on your property if your contractor fails to pay them—even if you paid the contractor in full.
Conditional Lien Waiver (Before Payment)
Contractor signs this when submitting an invoice. It says: "I waive my lien rights for work covered by this payment, conditioned on actually receiving payment." If the check bounces, the waiver is void.
Unconditional Lien Waiver (After Payment Clears)
Contractor provides this after receiving and cashing payment. It says: "I have been paid and unconditionally waive all lien rights for work through this date." This is your permanent protection.
5. Consider Escrow for Large Projects
For bathroom remodels exceeding $25,000, an escrow service adds another layer of protection. You deposit funds with a neutral third party who releases payments as milestones are verified.
Note: Many contractors prefer escrow because it guarantees payment. If your contractor refuses escrow, consider it a yellow flag—they may have cash flow issues or prefer flexibility to redirect your funds elsewhere.
6. Structure Your Final Holdback
The final 10-15% is your leverage to ensure everything gets finished properly. This payment should only be released when ALL of the following are complete:
Final Payment Release Checklist
7. Document Everything in Writing
Your payment schedule must be part of the written contract—not a verbal agreement. The contract should include:
- Total contract price and itemized breakdown
- Each milestone with specific completion criteria
- Dollar amount and percentage for each payment
- Lien waiver requirements at each stage
- What happens if work is delayed or abandoned
- Dispute resolution process
8. Track Payments and Keep Records
Create a simple spreadsheet or document that tracks:
- Date and amount of each payment
- Check number or transaction reference
- Milestone that triggered the payment
- Lien waiver received (yes/no with date)
- Photos of completed work at each milestone
Keep all payment records, lien waivers, and inspection reports together in a project folder. You may need them for warranty claims, insurance, or tax purposes.
Pro Tips
Always Pay by Check or Credit Card
Never pay contractors in cash. Checks provide a paper trail, and credit cards offer dispute protection. If a contractor insists on cash, walk away—this is a major red flag for potential fraud or tax evasion.
Verify Permit Inspections Independently
Don't take the contractor's word that inspections passed. Call your local building department or check online to confirm. Some contractors have been known to forge inspection stickers.
Get Subcontractor Information Upfront
Ask your contractor for a list of all subcontractors who will work on your project, along with their contact information and license numbers. This makes collecting lien waivers easier and gives you recourse if issues arise.
Consider Paying Suppliers Directly for Large Material Orders
For expensive items like custom vanities or specialty tile, you can pay the supplier directly rather than giving the contractor a large materials deposit. This ensures your money actually goes to materials and gets you a receipt directly from the supplier.
Common Mistakes to Avoid
Paying 50% or more upfront because the contractor seems trustworthy
Why it's a problem: Trust doesn't protect you legally or financially. Even well-intentioned contractors can face personal crises, health issues, or business problems that leave your project abandoned.
What to do instead: Stick to 10-15% deposits regardless of how much you like the contractor. Reputable contractors understand this.
Not collecting lien waivers because it feels awkward to ask
Why it's a problem: Lien waivers are standard practice in construction. If a contractor acts offended, they either don't understand the business or are hiding something.
What to do instead: Make lien waivers a contract requirement. Frame it as 'my lender requires this' if needed—many mortgage companies actually do.
Releasing final payment before punch list is complete
Why it's a problem: Once you've paid in full, you lose all leverage. Contractors prioritize paying jobs, and your punch list items may never get addressed.
What to do instead: Be firm that final payment is conditional on 100% completion. Put this in writing and don't waiver under pressure.
Accepting verbal milestone definitions
Why it's a problem: 'Rough-in complete' means different things to different people. Verbal agreements lead to disputes about when payments are due.
What to do instead: Document every milestone in writing with specific, measurable criteria. Include required inspections as part of the trigger.
Paying for materials the contractor claims to have ordered
Why it's a problem: You have no way to verify materials were actually ordered or that your funds weren't used for another project.
What to do instead: Request delivery receipts before paying for materials, or pay suppliers directly for large orders.
Sample Payment Schedule for a $35,000 Bathroom Remodel
Here's a concrete example of how the percentages translate to actual dollar amounts:
| Milestone | Percentage | Amount | Cumulative |
|---|---|---|---|
| Contract Signed | 10% | $3,500 | $3,500 |
| Demo Complete | 15% | $5,250 | $8,750 |
| Rough-In + Inspections | 30% | $10,500 | $19,250 |
| Fixtures + Finishes | 30% | $10,500 | $29,750 |
| Final Completion | 15% | $5,250 | $35,000 |
Frequently Asked Questions
How much should I pay a contractor upfront for a bathroom remodel?
A reasonable deposit is 10-15% of the total project cost, with a maximum of one-third (33%) in states that allow higher deposits. This covers the contractor's initial material costs and secures your project on their schedule. Be wary of any contractor requesting 50% or more upfront—this is a red flag for potential problems.
What is a lien waiver and why do I need one?
A lien waiver is a legal document where a contractor or subcontractor gives up their right to place a mechanic's lien on your property for the work covered by that payment. Without lien waivers, you could pay your general contractor in full, but if they fail to pay their subcontractors or suppliers, those parties could place liens on your home and you'd potentially have to pay twice.
What should I withhold for the final payment?
Withhold 10-15% of the total contract value for the final payment. This should only be released after: all punch list items are complete, final building inspections have passed, you've received all warranties and manuals, you have unconditional lien waivers from all parties, and you're fully satisfied with the work quality.
Can a contractor demand full payment before completing the job?
No reputable contractor should demand full payment before work is complete. In fact, many states have laws limiting how much contractors can collect upfront (often capped at 10% or $1,000, whichever is less, for the initial deposit). If a contractor insists on payment exceeding work completed, this is a major warning sign of potential fraud or financial instability.
What happens if a contractor abandons my project mid-way?
If you've structured payments properly (never paying ahead of completed work), your financial exposure is limited. Document the abandonment, send written notice demanding they fulfill the contract or return unused funds, file complaints with your state contractor licensing board, and consider legal action. Your contractor's bond (required in most states) may provide some recovery. This is why milestone-based payments are so important—they minimize your risk.
Ready for the Next Step?
With your payment milestones established, it's time to explore financing options if you need them. Understanding your financing before work begins helps you negotiate better terms and ensures smooth cash flow throughout the project.