Deposits and progress billing exist for the same reason: large jobs put both parties at risk, and money moving alongside the work keeps both sides honest. Skipping these on big jobs is the most common reason small contractors get into cash-flow trouble — you spend on materials and labor for weeks before any money comes in.
When to require a deposit. A deposit serves three purposes: (1) it filters out non-serious customers, (2) it funds materials and pre-job costs, and (3) it gives you legal standing if the customer cancels. For any job where you would be exposed to a material loss if the customer walked away tomorrow, take a deposit.
Designing a milestone schedule. A milestone schedule ties each payment to a verifiable point in the work — not to a calendar date, which can drift, and not to a percentage-of-completion estimate, which is subjective.
Refund and cancellation policy. Your written agreement should state what happens to the deposit if the customer cancels. A typical policy: deposit is non-refundable if cancelled after materials are ordered, refundable minus a small administrative fee if cancelled before. State this in writing — courts will not enforce a non-refundable deposit unless
Frequently asked questions
Is it legal to require a non-refundable deposit?
Yes, as long as the non-refundable terms are disclosed in writing before the customer pays. Courts may reduce or invalidate non-refundable deposits that are deemed punitive or unfair.
What is retainage?
Retainage is a percentage (typically 5–10%) of each progress payment that the customer holds back until the project is fully complete and any punchlist items are resolved. It's standard in construction and large project work.
