Deposits and Progress Billing: A Contractor's Playbook

Collect a deposit of 25 to 33 percent on residential remodels, then structure your draw schedule so 70 percent of the contract value is billed before finish work begins, with the final payment capped at 10 to 15 percent. That is the core system for staying cash-positive on every job. Here is how to build it into your contracts and use it with clients without apology.

Progress billing is not a favor you ask of a client. It is a non-negotiable payment system, the same way your truck and your license are non-negotiable. You built a business. You carry insurance, pull permits, manage subs, and buy materials weeks before you see a dollar back. The client does not float their mortgage. You should not float their kitchen remodel.

This guide covers how to structure a construction deposit, build a draw schedule that mirrors your actual costs, and have the conversation with clients before work starts.

Key takeaways

• Collect a construction deposit of 25 to 33 percent on residential remodels, 10 to 20 percent on larger commercial or custom fabrication jobs.
• Build your draw schedule around your cost curve: on a $50,000 kitchen remodel, 70 percent of the total gets collected before finish work even starts.
• Tie every payment to a verifiable milestone, not a calendar date, so there's nothing for the client to dispute.
• Use Net 7 terms on residential draw invoices and Net 15 on commercial work, and send the invoice the same day a milestone is hit.
• Keep the final payment under 15 percent of the contract so it never becomes the client's leverage to delay.

Why Most Contractors End Up Funding the Client's Job

The problem usually starts at estimate time. You price the job, the client says yes, and you start work before anyone talks about when money changes hands. By week three, you have spent real money on materials and labor. The client owes you at the thirty-day mark. Your account is already in the hole.

According to the Construction Financial Management Association, 84 percent of contractors cite cash flow as their top financial challenge. That number is not surprising when most small contractors have no formal contractor payment schedule in place.

The fix is straightforward. Bill against your cost curve, not against a calendar.

Your cost curve is simply when your money goes out on a job. Materials get bought early. Labor runs through the middle. Finishing work and punch list come last. Your billing should follow the same shape.

Start With a Construction Deposit: How Much and Why

A construction deposit accomplishes two things. It covers your early material costs, and it confirms the client is serious.

On most residential remodeling jobs, a deposit of 25 to 33 percent is standard. On larger commercial work or custom fabrication, 10 to 20 percent is more common because the job value is higher and owners expect to see work before releasing significant funds. Know your market.

Here is a practical breakdown by trade:

• Electrician running a full-service upgrade: Collect a deposit to cover panel, breakers, conduit, and wire before you schedule the crew. Materials on an 200-amp service upgrade can run $1,500 to $3,000 before one hour of labor is billed.
• Plumber doing a bathroom rough-in: Fixtures, valves, supply lines, and drain fittings need to be on-site before rough inspection. A 30 percent deposit gets that material purchased without touching your operating capital.
• HVAC contractor replacing a full system: Equipment deposits are common and expected. Manufacturers often require payment before they ship. Pass that requirement to the client in writing.
• General contractor framing an addition: Lumber packages can run $15,000 to $40,000 or more. Collect a deposit that covers that purchase. Do not order materials you have not been paid for.

One rule that applies across all trades: your deposit should cover the cost of materials you need to purchase before work begins, plus a reasonable portion of your mobilization labor. Nothing more, nothing less. That framing protects you legally in most states and makes the ask easy to justify to the client.

How to Build a Draw Schedule That Matches Your Real Costs

A draw schedule is a payment plan tied to job milestones, not dates. Milestone-based billing protects you because payment triggers are tied to visible, verifiable progress. The client cannot dispute that rough framing is complete. They can dispute whether October 15th feels like the right day to pay.

Here is a simple draw structure for a $50,000 kitchen remodel:

Notice that 70 percent of the total is collected before finish work begins. That is intentional. Your heaviest costs, demo labor, rough materials, structural work, hit early in the schedule. Your billing should too.

The final 10 percent is intentionally small. A large retention on the back end creates leverage for the client to drag their feet on the final payment. Keep it modest. Make your punch list short and specific. Get paid.

For a draw schedule to work, it needs to be written into the contract. Not mentioned verbally. Not emailed after signing. Written in, signed by both parties, with each milestone defined clearly enough that there is no argument about whether it was reached.

How to Bill a Construction Job: The Mechanics

Knowing how to bill a construction job efficiently matters as much as the schedule itself. A missed invoice or a vague billing description creates delay.

Each draw invoice should include:

• The project name and address
• The milestone description in plain language ("Rough framing complete and inspected" not "Phase 2")
• The amount due and the due date
• Payment methods accepted
• Reference to the contract and the draw schedule

Send the invoice the same day the milestone is hit. Do not wait until end of week. Do not batch it with other invoices. The moment the inspector signs off or the cabinets go in, invoice.

Use software that lets you attach photos to your invoice. A photo of the completed rough plumbing before the walls close does two things. It documents your work and it makes the milestone undeniable. The client sees exactly what they are paying for.

Net 7 terms on draw invoices are reasonable for residential work. Net 15 is acceptable on commercial projects. Anything beyond that and you are waiting three weeks after you completed a milestone to collect. That gap is where cash flow problems live.

The Client Conversation: How to Present Progress Billing Without Apology

Most contractors dread this conversation because they frame it wrong. They present the draw schedule like a favor they are asking for. That framing loses before the first word is spoken.

Present it as part of how your business operates.

Here is a script you can use word for word:

"Before we get started, I want to walk you through how billing works on this project. We work on a draw schedule tied to job milestones. Here is the breakdown. The deposit covers materials I need to order before we mobilize. Each payment after that lines up with a stage of work you can see and verify. The final payment comes at punch list completion. This is how we manage every job. It keeps the project funded so there are no delays waiting on materials or labor."

That is it. No apology. No asking for permission. You are explaining a system, the same way you would explain your inspection process or your warranty terms.

If a client pushes back and wants to pay everything at the end, that is a red flag worth taking seriously. A client who understands how construction works will not make that request. A deposit and a draw schedule protects them too, because it keeps the job moving and funded through completion.

A Few Rules to Keep Cash Positive on Every Job

These are non-negotiable if you want to stop funding your clients' projects:

• Never start work without a signed contract that includes the draw schedule.
• Never order materials for a job before the deposit clears.
• Invoice the same day a milestone is hit.
• Keep your final payment under 15 percent of the total contract.
• If a payment is late, pause work. Make it a written policy so it is never personal.

The last point matters. If you keep working through a missed payment, you teach the client that the draw schedule is optional. It is not. It is the contract.

The Bottom Line

Progress billing is not aggressive. It is organized. Every other part of your business runs on a system, your estimates, your schedules, your material orders. Your contractor payment schedule deserves the same discipline.

Build your draw schedule around your actual cost curve. Collect a construction deposit that covers early material buys. Invoice the moment the milestone is complete. Keep the final payment small enough that it does not become a negotiation tool.

If you do those four things on every job, cash does not go negative. And you stop being the bank for work you already did.

Frequently asked questions

Is it legal to require a deposit before starting a construction job?

In most states, yes, though many states regulate how much you can collect and require it to be tied to material costs or work performed, not collected as pure profit upfront. Some states cap deposits or require the funds to sit in a separate account until work begins. Check your state's contractor licensing rules before setting your standard deposit percentage, and keep the amount tied to real pre-start costs.

What if a client refuses to pay the deposit before you start?

Take it seriously. A client who pushes back hard on a reasonable deposit is often the same client who will push back hard on the final invoice or a mid-project draw. If they will not put money down before you order materials, you are being asked to finance their job with your own cash. It is fair to walk away or require a smaller test job first.

How much deposit should you collect on a smaller job?

The percentage matters less than the principle: your deposit should cover whatever materials and mobilization labor you need to spend before work begins, nothing more. On a small repair with little upfront material cost, that might be a modest flat fee. On a job requiring special-order parts or equipment, it could still mean 25 to 33 percent even if the total contract is small.

What if a client disputes whether a milestone has been reached?

This is exactly what milestone-based billing is designed to prevent. Define each milestone in specific, observable terms in the contract, such as "rough mechanical and framing inspections passed," not vague phase names. Attach photos to each draw invoice showing the completed work. A milestone tied to something the client can see and an inspector has signed off on is very hard to argue with.

Should commercial jobs use the same deposit percentage as residential jobs?

No. Residential remodeling jobs typically run a 25 to 33 percent deposit because the total contract value is smaller and the risk is higher on a single homeowner. Larger commercial jobs or custom fabrication work usually run 10 to 20 percent instead, since the overall job value is higher and commercial owners expect to see some work completed before releasing significant funds.

What happens if a client is late paying a draw invoice?

Pause work. That should be a written policy in your contract, applied the same way every time, not a personal decision made job by job. If you keep working through a missed milestone payment, you are teaching the client that the draw schedule is optional. It is not optional, it is the contract, and treating it that way protects your cash flow on every future job too.

Krue is built to help contractors invoice faster, track draws, and get paid on schedule. See how it works.

A draw schedule only protects you if the invoices go out on the milestones. Krue tracks each stage and fires the progress invoice the day the milestone lands, deposit to final payment, so your cash arrives when the work does.