Establish Contractor Payment Schedule
Never pay everything upfront - this is the cardinal rule of working with contractors. A properly structured payment schedule protects your investment, maintains contractor motivation, and gives you leverage if problems arise. Tie every dollar to completed milestones.
Quick Summary
Maximum Deposit
10-20%
Never more than 25%
Final Holdback
10-15%
Until punch list complete
Payment Method
Documented only
Check, card, or transfer
Why Payment Structure Matters
Your payment schedule is your primary leverage throughout the project. Once money leaves your account, your ability to influence outcomes diminishes dramatically. Contractors who have been fully paid have little financial incentive to return for punch list items or address complaints.
A well-structured payment schedule also protects you from contractor failure. Construction businesses fail at higher rates than most industries. If your contractor goes bankrupt mid-project after you've overpaid, you'll lose that money and still need to pay another contractor to finish.
- Maintains motivation: Contractor stays engaged when future payments depend on quality work
- Provides leverage: Withheld funds give you power to ensure issues get resolved
- Limits exposure: If contractor fails, your losses are limited to work paid but not completed
- Aligns cash flow: Payments match work progress, keeping project financially balanced
- Creates documentation: Payment records tied to milestones provide clear project history
- Supports lien protection: Proper payments with waivers prevent mechanic's liens on your property
Recommended Payment Schedule for Whole Home Remodels
Standard Milestone-Based Schedule
Contract Signing (Deposit)
Upon signing contract, before any work begins
Construction Start
Materials ordered, demo begins, permits posted
Rough-In Complete
Framing, electrical, plumbing, HVAC roughed in and inspected
Substantial Completion
Drywall, flooring, cabinets, tile - home is livable
Final Payment
Punch list complete, final inspection passed, all documents received
Important: This schedule ensures you never pay more than the value of work completed. At any point, if the contractor walked away, you'd have assets (completed work and materials on site) roughly equal to what you've paid.
Defining Clear Payment Milestones
Deposit (10%): Contract Execution
The deposit secures your spot on the contractor's schedule and covers initial administrative costs. It should be the smallest payment in the schedule.
What It Covers
Contract preparation, initial scheduling, permit application filing fees, ordering long-lead materials (if specified).
Trigger Conditions
Signed contract from both parties, proof of contractor insurance, valid contractor license verified.
Documentation Required
Signed contract, insurance certificates, license copy, project schedule, permit application receipts.
Red Flag: Contractors asking for more than 20% deposit or payment before providing signed contract and insurance documentation. This suggests cash flow problems or potential fraud.
Construction Start (20%): Mobilization
This payment covers materials procurement and initial labor to begin physical work on your project.
What It Covers
Material deliveries on site, demolition labor, site preparation, dumpster rental, temporary facilities.
Trigger Conditions
Building permit approved and posted, materials delivered to site, demolition substantially complete, no stop-work issues.
Verification Steps
Visit site to confirm permit posted, materials present, demolition complete. Take photos. Confirm no issues discovered during demo requiring change orders.
Rough-In Complete (25%): Systems Installed
The largest mid-project payment, triggered by completion of all behind-the-wall work and successful rough-in inspections.
What It Covers
Framing complete, electrical rough-in, plumbing rough-in, HVAC ductwork, insulation, windows and exterior doors installed.
Trigger Conditions
ALL rough-in inspections passed (framing, electrical, plumbing, mechanical, insulation). Inspection cards signed by building inspector.
Critical Verification
Review inspection reports personally. Failed inspections must be corrected and re-inspected before payment. This is your last chance to see inside walls.
Pro Tip: Schedule a walkthrough before drywall goes up. Take extensive photos of all rough-in work. This documentation is invaluable for future repairs or modifications.
Substantial Completion (30%): Home Is Livable
This payment recognizes that the major construction work is complete and the home could technically be occupied, though finish work remains.
What It Covers
Drywall finished, flooring installed, cabinets set, tile complete, paint applied, major fixtures installed, HVAC operational.
Trigger Conditions
All rooms have functioning light fixtures, plumbing fixtures operational, HVAC working, floors complete, no safety hazards present.
Documentation
Create initial punch list during this walkthrough. Note every item needing attention - scratches, touch-ups, adjustments, incomplete items.
Final Payment (15%): Project Complete
The final payment is your leverage to ensure every detail is addressed. Never release it until you're 100% satisfied.
Trigger Conditions (ALL Required)
Every punch list item resolved, final inspection passed, certificate of occupancy issued, all warranties and manuals provided, final lien waivers received.
Required Documentation
- • Certificate of occupancy or final inspection approval
- • Unconditional lien waivers from GC and all subs
- • All appliance warranties and manuals
- • HVAC startup documentation and warranty
- • As-built drawings if modifications were made
- • Paint colors and finish specifications
Protect Yourself: It's acceptable to hold final payment for 30 days after "completion" to ensure no issues arise. Many contracts include this provision. Use the time to thoroughly test all systems.
Understanding Lien Waivers
Lien waivers protect you from claims by subcontractors or suppliers who weren't paid by your general contractor. Without them, these parties can place mechanic's liens on your property - even if you paid your GC in full.
Conditional Lien Waiver
Becomes effective only when payment clears. Provided before or with payment. Protects the payer if check bounces.
When to get: With each progress payment request
Unconditional Lien Waiver
Effective immediately regardless of payment status. Provided after payment clears. More valuable to homeowner.
When to get: With next payment after previous clears
Best Practice: Request conditional waivers with each payment request, then unconditional waivers with the following payment. At final payment, require unconditional waivers from all parties before releasing funds.
Acceptable Payment Methods
Recommended Methods
- • Check: Creates clear paper trail, allows stop-payment if needed
- • Bank transfer (ACH/wire): Documented, traceable, fast
- • Credit card: Offers dispute protection, rewards (if contractor accepts)
- • Construction loan draws: Lender verifies work before release
Never Use
- • Cash: No proof of payment, no recourse
- • Venmo/PayPal personal: Limited buyer protection
- • Cryptocurrency: No consumer protections
- • Gift cards: Complete scam indicator
Payment Request Red Flags
"I need 50% upfront for materials"
Legitimate contractors have supplier accounts and don't need your money to buy materials. At most, 10-20% deposit is reasonable. High upfront demands suggest cash flow problems or potential fraud.
"Pay cash and I'll give you a discount"
This is tax evasion - you're helping them avoid reporting income. It also eliminates your paper trail and consumer protections. Never agree to cash payments.
"I need payment now - the next job is pressuring me"
Your contractor's cash flow problems shouldn't become yours. Payment should follow your agreed schedule, triggered by completed work - never by their external pressures.
"Make the check out to me personally"
Payments should go to the company name on your contract and insurance certificates. Personal payments bypass business protections and may indicate licensing issues.
Common Mistakes to Avoid
Paying 50% or more upfront before work begins
Consequence: Contractor has little incentive to finish, and you have minimal recourse if they abandon the project or do poor work
Prevention: Never pay more than 10-20% deposit, and tie all subsequent payments to verified completed milestones
Making payments without inspecting completed work
Consequence: You pay for work that's incomplete, defective, or not to specification, losing leverage to get corrections
Prevention: Physically inspect or have your project manager verify all milestone work before releasing payment
Releasing final payment before punch list completion
Consequence: Contractor moves on to next job, punch list items never get fixed, you're left with incomplete project
Prevention: Hold 10-15% until ALL punch list items are resolved and final inspection passes
Paying in cash without receipts
Consequence: No proof of payment, no consumer protection, difficulty with insurance claims or disputes
Prevention: Always pay by check, credit card, or documented bank transfer - never cash
Not getting lien waivers with each payment
Consequence: Subcontractors or suppliers not paid by GC can place liens on your property even though you paid
Prevention: Require unconditional lien waivers from contractor and major subs with each payment release
Agreeing to payments tied to calendar dates instead of milestones
Consequence: You pay on schedule even if work is behind, losing leverage and funding incomplete phases
Prevention: Tie every payment to specific, verifiable work completion - never to arbitrary dates
Frequently Asked Questions
How much deposit should I pay a contractor upfront?
For whole home remodels, a 10% deposit is standard and reasonable. Some contractors ask for up to 20% for material purchases. Never pay more than 25% upfront. In some states, contractors are legally limited in deposit amounts. High deposit requests (33-50%) are major red flags.
What is a typical payment schedule for home renovation?
A typical schedule is: 10% deposit at signing, 20-25% at construction start, 20-25% at rough-in completion, 20-25% at substantial completion, and 10-15% final payment after punch list. Never pay for work not yet completed.
Should I pay a contractor in cash?
Never pay in cash. Always use check, credit card, or bank transfer that creates a paper trail. Cash payments eliminate proof of payment, may indicate tax evasion, and make disputes impossible to resolve.
What is retainage or holdback in construction?
Retainage is 5-10% held back from each payment until project completion. It ensures the contractor completes all work including punch list items. On a $300,000 project with 10% retainage, you'd hold back $30,000 until final inspection passes.
What if the contractor asks for more money mid-project?
Legitimate requests come with documented change orders for scope additions or unforeseen conditions. Requests without documentation or for work already in scope are red flags. Review your contract, get everything in writing, and don't pay for undocumented changes.