Take a deposit of roughly 10-33% up front, then bill in draws tied to real milestones so each payment lands before you spend on that phase. Done right, the client’s money funds the client’s job, and your own bank account never becomes the construction loan.
Most contractors who go broke aren’t losing money on the work. They’re losing it on timing. You buy $9,000 of cabinets on your card in week two, the client pays in week six, and for a month you’ve quietly loaned them nine grand at your own expense. Multiply that across three active jobs and a slow-paying homeowner, and a profitable business runs out of cash anyway.
A deposit-plus-draw schedule fixes the timing. The point isn’t to squeeze the client. It’s to keep the money moving in the right order: cash in, then costs out, on every single phase.
How big should the deposit actually be?
The honest answer is “enough to cover what you spend before the first draw, plus a little.” For most residential work that lands somewhere between 10% and a third of the contract. Where you sit in that range depends on how front-loaded your costs are and what your state allows.
A few states cap what you can collect up front on home improvement contracts. California is the strict one: the deposit can’t exceed 10% of the contract or $1,000, whichever is less. Maryland, New York, and others have their own limits on residential jobs. If you work in a capped state, don’t fight it, just structure a fast first draw right after work begins so you’re not floating much.
- Small jobs (under ~$5k): 25-33% is normal. Your material and mobilization costs are a big share of the whole, so you need more up front.
- Mid-size remodels ($15k-$75k): 10-20% deposit, then draws. The deposit should roughly cover permits, initial materials, and getting crews on site.
- Large or long jobs: A smaller percentage deposit but more frequent draws, so you’re never more than one phase ahead of the money.
The number I’d push back on is anything under 10% on a materials-heavy job. If you’re special-ordering cabinets, windows, or tile that you pay for before it ships, a token deposit means you’re financing the supplier out of pocket. Match the deposit to what leaves your account first.
Draws should follow milestones, not the calendar
Tie every payment to something the client can see is done: demo complete, rough-in passed, cabinets set, final walkthrough. Milestone billing is easier to defend than “it’s the 15th, pay me,” and it keeps you honest about staying ahead. A date-based schedule can drift out of sync with the work; a milestone-based one can’t, because you don’t invoice for a phase you haven’t reached.
The rule underneath the schedule: each draw should land before you incur that phase’s biggest cost. If cabinets get set in the “rough-in complete” phase, collect that draw when rough-in passes inspection, then order and pay for cabinets. Never the reverse.
Watch out: Don’t let the final payment be large enough that the client can hold your profit hostage over a punch-list nitpick. Keep the last draw around 10% and make sure your margin is already collected in the earlier draws, not parked at the very end where it’s most at risk.
A worked example: $48,000 kitchen remodel
Say the contract is $48,000. Your costs break down to roughly $30,000 in materials and subs and $8,000 in labor, leaving about $10,000 of overhead and profit. Here’s a schedule that keeps you cash-positive the whole way through.
| Milestone | % of contract | Amount | Covers costs of |
|---|---|---|---|
| Deposit (signing) | 15% | $7,200 | Permits, cabinet deposit, mobilization |
| Demo complete | 20% | $9,600 | Framing, plumbing/electrical rough materials |
| Rough-in passed | 25% | $12,000 | Cabinet balance, countertop deposit, drywall |
| Cabinets & counters set | 30% | $14,400 | Tile, fixtures, finish labor |
| Final walkthrough | 10% | $4,800 | Punch list, retained profit |
Notice the shape. You collect $7,200 before you’ve spent a dime beyond the cabinet deposit. By the time you order the expensive cabinets and countertops, the rough-in draw ($12,000) is already in the bank. At no point are you more than a few thousand dollars ahead of the client’s money, and your $10,000 of margin is spread across the middle draws rather than stranded at the end. If you want to test different splits against your own cost breakdown, the deposit and progress payment calculator will map the percentages to dollars for you in a few seconds.
Match cash in to costs out, phase by phase
The schedule only works if you actually check it against your spending. Before each phase, ask one question: does the draw I’m about to collect cover the costs I’m about to incur? If a phase is unusually material-heavy, weight its draw up and pull from a lighter phase. A kitchen with a $14,000 cabinet package might need a bigger rough-in draw and a slimmer demo draw than the table above.
This is also where knowing your real costs matters. If you’re guessing at material totals, you can’t size the draws. Keep your job costs current as receipts come in, so the deposit and each draw are built on numbers, not vibes. A running tally of what each job has actually cost tells you whether you’re still ahead of the money or quietly slipping behind.
Put it in writing, every time
The payment schedule belongs in the signed contract, spelled out milestone by milestone with the dollar amount next to each. Vague terms like “progress payments as work proceeds” invite arguments. Name the trigger, name the number. Add a short clause that work pauses if a draw is more than a few days late, and that change orders are billed and collected before that extra work starts, not rolled into the final invoice where they’re easy to dispute.
One more habit worth building: invoice the moment a milestone is hit, not at the end of the week. The faster the invoice goes out, the faster the draw comes in, and the whole point of this system is to stay ahead of your own outflows.
Frequently asked questions
Is it legal to ask for a deposit before starting work?
Yes, in almost every state. A handful cap how much you can collect up front on residential home improvement jobs, most notably California at 10% or $1,000, whichever is less. Check your state’s contractor rules, and if there’s a cap, structure a quick first draw to make up the difference.
What’s a normal deposit percentage for a contractor?
Roughly 10-33% of the contract. Smaller jobs and materials-heavy work run toward the high end because your early costs are a bigger share of the total. Larger jobs use a smaller deposit with more frequent draws.
Should progress payments be based on dates or milestones?
Milestones. Tie each draw to a visible stage, like rough-in passed or cabinets set, so payment stays in sync with the work. Date-based schedules drift out of alignment when the timeline shifts.
How do I keep the final payment from being held hostage?
Keep the last draw small, around 10%, and make sure your profit is already collected in the earlier draws. That way a punch-list disagreement is over a few hundred dollars of finish work, not your entire margin.
How do I handle change orders in the schedule?
Write each change order separately and collect for it before the extra work begins. Don’t fold it into the final invoice, where it’s the easiest thing for a client to contest.
How do I know if my draws are big enough?
Compare each draw to the costs of the phase it precedes. If you’re about to spend more than you’re collecting for that stage, reweight the schedule. Running the numbers against your actual job costs is the only reliable check.
Contractors don’t go under from bad work; they go under from bad timing. Tabby keeps your job costs current so you always know whether the next draw covers the next phase, and the deposit and progress payment calculator turns your schedule into exact dollar amounts. Start a free trial and stop financing your clients’ remodels out of your own pocket.
