Should I pay my contractor upfront?

One of the clearest signals of legitimate vs. fraudulent contractors is how they ask for payment. State licensing law in most states regulates maximum deposits; industry best practice layers additional protections on top.

California statutory limits:

California Business and Professions Code §7159 caps residential contract deposits at the lesser of 10% of contract price or $1,000. Any deposit exceeding this is a violation of license law and triggers CSLB enforcement.

Other states:

• Maryland — deposit limit 1/3 of contract on home improvements.
• New York — maximum 1/3 deposit.
• Texas — no state cap; contractual.
• Florida — 10% deposit cap + 10% held until completion.
• Oregon — deposit limits in some situations.

Standard residential draw schedule:

1. Deposit at signing — 5-10% or $1,000, whichever less.
2. At permit issuance + materials ordered — 10-15%.
3. At demo + rough framing — 15-20%.
4. At rough-in (plumbing, electrical, mechanical) — 15-20%.
5. At drywall + paint — 15-20%.
6. At substantial completion — 10-15%.
7. Final retainage at punch-list clearance + lien waivers — 5-10%.

Why upfront-heavy payment fails:

• Contractor has no financial incentive to finish.
• If contractor abandons, recovery is harder.
• Unlicensed contractors often demand large upfront to fund materials + escape.
• Materials ordered with upfront funds may never actually be delivered.

Payment methods and their protections:

• Credit card — 60-day chargeback window under Fair Credit Billing Act. Best consumer protection.
• Check — most common. Stop-payment possible for a window.
• Wire transfer — fast but difficult to reverse.
• Cash — worst option.
• Escrow — for larger projects ($200K+).

Standard protective practices:

1. Use credit card for deposit where contractor accepts.
2. Write check to the licensed business entity (not an individual name).
3. Document every payment with a dated receipt referencing the draw.
4. Collect unconditional lien waivers from each sub after each draw.
5. Hold retainage until final inspection + punch-list clearance + lien waivers.

AskBaily's contract template implements a standard draw schedule with 10% retainage and lien-waiver collection. See /ask/how-do-progress-payments-work-in-construction for the full draw framework.