Contractor Payment Terms

Two contractors can bid the same number and end up in completely different places ninety days later. The difference is almost always the payment terms. Terms decide when money actually lands in your account, who carries the cost of materials, and what happens when a client goes quiet.

Put contractor payment terms in writing on the estimate — not verbally, not in a text after the job starts. If it isn't on the paper the client signed, it's a conversation, not an agreement.

• Due on receipt — payment is expected the day you hand over the invoice. Best for small jobs and one-day work.
• Net 15 / Net 30 — the client has 15 or 30 days from the invoice date. Common with builders, property managers, and anyone running an accounts-payable department. Net 30 is the default most commercial clients expect.
• Deposit / down payment — money up front before work starts, usually to cover materials. Many states cap what a residential contractor can collect up front, so check your state rules before you write a number.
• Progress payments (draws) — the job is split into milestones and each one gets paid as it's completed. This is the single best protection on jobs that run longer than a week.
• Retainage — the client holds back a percentage (often 5–10%) until final walkthrough. Standard on commercial work. Know it's coming so you can price for it.

For most residential jobs over a few thousand dollars, a three- or four-part schedule keeps you from ever funding the client's project out of your own pocket:

• Deposit at signing — covers materials, not profit.
• Progress payment when the rough work is complete.
• Progress payment at a clear, visible milestone.
• Final balance due at completion and walkthrough.

Never let the remaining balance be larger than the work you have left to do. If it is, you're financing the job.

Payment terms: 30% deposit due at signing to secure scheduling and materials. 40% due upon completion of rough work. Remaining 30% due upon final walkthrough. Invoices are due within 15 days of issue. A late charge of 1.5% per month applies to balances past due. Work may be paused on any account more than 15 days overdue.

A late fee only works if the client agreed to it before the work started. State it as a monthly percentage (1–1.5% per month is typical and enforceable in most places), put it on the estimate and on every invoice, and check your state's cap on interest before you set the rate.

The point of a late fee isn't the money. It's giving you a calm, factual reason to follow up: "Just a heads up, the 1.5% late charge kicks in Friday."

When a customer ignores agreed contractor payment terms, escalate payment reminders slowly and keep every reminder in writing. A friendly reminder, then a firm follow-up with the exact amount and a deadline, then a final notice. Every message you send is a record — and records are what win disputes.

• Small repairs under a day: payment due on completion.
• Mid-size jobs (a few days): deposit at signing, balance on completion.
• Large remodels: deposit plus progress payments tied to clear milestones like rough-in or inspection.
• Commercial or property-management work: expect Net 30, and price the wait into your bid.

Progress-payment milestones should be things anyone can see — "cabinets installed" — not "halfway done," which invites arguments.

Can I change my terms for a customer who paid late before? For a customer who previously paid late, it's reasonable on future jobs to require a larger deposit or payment on completion. State the new terms on the next estimate before work starts.

Do terms need a signature? A signed estimate or contract that includes payment terms is strongest. At minimum, get a written "yes" to an estimate that includes the terms, and repeat them on every invoice.

Are late fees always enforceable? Rules on late fees and interest vary by state. Keep the fee reasonable, state it before the work starts, and check your state's limits.

Contractor payment terms only work if the customer sees the terms more than once. Put them on your estimate, repeat them in your contract, and print them on every invoice. When a customer pays late, you can point back to three documents they already saw instead of explaining your policy for the first time.

• Deposit amount and due date.
• Milestones for any progress payments.
• Final payment due date written as a real date.
• Accepted payment methods.
• Late fee, if any, stated before work starts.