How much deposit should a contractor ask for? Enough to secure the job and cover real upfront costs, but never more than your state allows. California caps most home improvement down payments at $1,000 or 10% of the contract price, whichever is less, and Maryland caps deposits at one-third. Put the amount and refund terms in writing.
This is general information, not legal advice. Deposit rules differ by state, province and type of work, so check with your state's contractor licensing board or consumer protection office, or ask a local attorney.
It commits the customer. A paid deposit makes it less likely you'll hold a start date for someone who disappears.
It covers early costs. You may need to order materials, pull permits or turn down other work to keep the slot open.
It sets the tone. Clear money terms at the start make later invoices less awkward.
A deposit is not a way to get paid for work you haven't done yet. In some states the law says so directly, as the next section shows.
California. The Contractors State License Board (CSLB) says that for a home improvement job or swimming pool, the down payment cannot be more than $1,000 or 10 percent of the contract price, whichever is less, excluding finance charges. CSLB adds that there are no exceptions for special order materials. The only exception it describes is for a small number of licensees with blanket performance and payment bonds on file.
CSLB's contractor guide also says that, apart from the down payment, a contractor can't demand or accept payment for work or materials until the work is actually done or the materials are delivered. If you charge a down payment, the contract must show it under the heading "DOWN PAYMENT" with a set statement about the limit in 12-point bold type. In California, home improvement projects over $500 in combined labor and materials must be in a written contract.
Example of how the cap works (made-up job prices):
$6,000 job: 10% is $600, which is less than $1,000, so the most you can ask is $600.
$25,000 job: 10% is $2,500, which is more than $1,000, so the most you can ask is $1,000.
Maryland. The Maryland Home Improvement Commission says a contractor cannot accept more than 1/3 of the contract price as a deposit, and may not accept any payment until the contract is signed. Beyond that first deposit, it says the law doesn't control the payment schedule, so the homeowner and contractor can negotiate payment terms, including a smaller deposit.
Everywhere else. These two states show how different the rules can be: a flat cap in one, a fraction of the price in another. Rules like these usually apply to home improvement work on residences, so check what covers your trade, your job type and your customer before you set a standard deposit.
Tie it to real costs. Base the deposit on what you must spend before day one, such as materials you order for that job.
Use progress payments for bigger jobs. CSLB says a home improvement contract must include a payment schedule showing each payment and what work or materials it covers, and that payments can't exceed the value of work performed. New Zealand's government business site, business.govt.nz, suggests a phased approach for bigger jobs, such as splitting a six-month project into payments at the beginning, middle and end.
Skip it on small jobs. For a quick repair, collecting payment on completion may be simpler for everyone.
Talk about it early. Business.govt.nz also suggests talking to your customer about the payment plan that suits them before the job begins.
Put deposit terms in your quote and your contract, in plain words. Here's an original template to adapt. Make sure every part matches the law where you work.
Amount: "A deposit of $[amount] is due when you sign this agreement."
Legal limit (if your state has one): "This deposit does not exceed the limit set by [state] law."
How it's applied: "We will credit your deposit against the total price, and your final invoice will show it."
Scheduling: "We will confirm your start date once your deposit is received."
Payment methods: "We accept [bank transfer, check, card link]."
Cancellation and refunds: "If you cancel within any cancellation period the law gives you, we will refund your deposit as the law requires. [Describe what happens after that period.]"
On cancellations, California is a useful example of why this line matters. CSLB explains that buyers of home improvement goods or services generally get three business days to cancel, or five if they're 65 or older, and that the contractor must return any money paid within 10 days of receiving the cancellation. That right doesn't apply when the contract is negotiated at the contractor's place of business, and there's an exception for service and repair contracts for emergency work the customer requests on short notice.
For the rest of the paperwork, see this guide on how to write a contractor estimate.
A receipt protects you and your customer. Include:
Your business name, contact details and license number if you have one
The customer's name and the job address
The date, amount and payment method
What it's for, for example "Deposit on contract #1045"
The contract total and the balance remaining
The IRS lists receipts, invoices, deposit slips and canceled checks among the supporting documents businesses should keep, and suggests storing them in an orderly way, such as by year and type of income or expense. On the final invoice, show the deposit as a credit so the balance due is obvious. Our sister site's guide to what to include on an invoice covers that layout.
It depends on where you work and what kind of job it is. For home improvement work, California caps down payments at $1,000 or 10%, whichever is less, and Maryland at one-third, so 50% would break both rules. Check your own state's rules.
That depends on your contract and the law. Some states, including California, require a refund if the customer cancels within a legal cancellation period. Spell out your refund terms in writing.
In California, CSLB says there's no exception to the down payment limit for special order materials, and payment for materials can't be taken until they're delivered. Other states may differ, so check before you quote.
No. Maryland bars any payment before the contract is signed, and getting a signed agreement first is good practice everywhere.
ScopeBid: Estimate & Invoice is an iPhone app for independent service pros and small contractors that creates PDF quotes with your logo and payment details, records deposits and partial payments, and converts approved quotes to invoices. It only records payments and does not process cards or move money. Its tools are estimating aids, not legal advice, so you still need to check your state's deposit rules yourself.
Get ScopeBid free on the App Store
Terms of Agreement: A Consumer Guide to Home Improvement Contracts (California CSLB)
Contracting for Success: A Contractor's Guide to Home Improvement Contracts (California CSLB)
Maryland Home Improvement Contracts (Maryland Home Improvement Commission)