Structure your contractor payment schedule around three to five milestones, collect 25 to 33 percent upfront as a construction deposit, and tie every draw to work that is already complete. Do that consistently and your cash flow stays positive from day one. Most contractors bill at the end of a job because that is how they learned the trade. The result is weeks of labor and materials coming out of their own pocket, chasing a check that may or may not arrive on time. This tutorial walks through exactly how to flip that structure, milestone by milestone, so cash comes in ahead of costs instead of behind them.
Key takeaways
- Collect a deposit of 25 to 33 percent before you order materials or put one person on the job.
- A draw schedule ties each progress payment to a specific, verifiable milestone, not a calendar date.
- Three to five payment milestones cover most residential and light commercial jobs cleanly.
- Present the payment schedule in writing before the contract is signed, not after the client has questions.
- Never fund the next phase with money earmarked for the current one. That is how contractors go upside down.
What you need before you build your payment schedule
Before you write a single number into a contract, you need three things: a detailed scope of work, a realistic material cost breakdown, and a rough project timeline. These are not optional prerequisites. A payment schedule built without them will either leave you short on a draw or give the client ammunition to delay payment.
Here is what to have in hand before you structure the schedule:
- Scope of work: Every trade included, every allowance called out, every exclusion stated in plain language.
- Material cost breakdown: Know what you are spending on materials per phase, not just the total job cost. A bathroom remodel might be $18,000 total, but $6,400 of that is tile, fixtures, and a new vanity that all hit before rough-in is even done.
- Project timeline: Even a rough one. Week one through week six, phase by phase.
- Your overhead costs: Labor burden, fuel, tool wear, insurance. Know your weekly burn rate so you can see where the job goes cash-negative without a draw.
If you are running a kitchen remodel at $42,000, and materials alone run $15,000, you need that first draw to cover at least the deposit on cabinets and appliances before you swing a hammer.
Step 1: Set the right construction deposit amount
A construction deposit is the upfront payment a client makes before work starts. It covers your initial material costs and signals that the client is committed. The right number is 25 to 33 percent of the total contract for most residential work.
On a $20,000 bathroom remodel, that is $5,000 to $6,600 upfront. On a $65,000 addition, that is $16,250 to $21,450. That first check should cover your material deposits, your first week of labor, and your mobilization costs, with a little left over.
Some states cap deposit amounts by law. California limits deposits to $1,000 or 10 percent of the contract price for home improvement work, whichever is less. Check your state's contractor licensing board rules before you set this number.
Do not collect more than you can justify. A 50 percent deposit on a small job looks predatory and spooks good clients. A 25 to 33 percent deposit backed by an itemized material list is easy to defend and easy for the client to understand.
What to say when a client pushes back: "This deposit covers the materials we order before we start. Once they are on the truck, they belong to your job. We do not use one job's money to fund another." That is honest and it closes most objections.
Step 2: Build your draw schedule around real milestones
A draw schedule is a written list of payment milestones tied to specific points of completion in the project. The payment is due when the milestone is reached, verified, and signed off, not on a calendar date.
Calendar-based billing ("pay every two weeks") puts the client in control of your cash flow. Milestone-based billing puts the work in control. If the work is done, the draw is due. Period.
Here is a five-milestone draw schedule that works for most residential remodels and light commercial projects:
| Milestone | When It Triggers | Typical % of Contract |
|---|---|---|
| Deposit | Contract signed, before mobilization | 25 to 33% |
| Rough-in complete | Framing, plumbing rough, electrical rough done and inspected | 20 to 25% |
| Drywall / Weathertight | Walls closed, roof dried in, or equivalent phase complete | 15 to 20% |
| Substantial completion | Fixtures installed, finishes done, punch list written | 15 to 20% |
| Final draw | Punch list cleared, certificate of occupancy received | 10% |
That final 10 percent is intentional. It is not a holdback for the client to squeeze you. It is leverage to get the punch list done fast and close the job clean. Make sure the scope of the final draw is specific: "Payment due within five business days of punch list completion and CO issuance."
For a $42,000 kitchen remodel, that table looks like this in real dollars:
| Milestone | Amount Due |
|---|---|
| Deposit | $12,600 |
| Rough-in complete | $9,240 |
| Drywall complete | $7,560 |
| Substantial completion | $7,560 |
| Final draw | $5,040 |
On a shorter job, three milestones is enough. An electrician doing a $4,200 service panel upgrade might collect 33 percent upfront ($1,386), 50 percent at rough-in ($2,100), and the balance at final inspection ($714). Simpler is fine. The principle is the same: cash comes in before the next phase starts.
Step 3: Write the payment terms into the contract before you start
Verbal agreements about payment dissolve the moment there is a dispute. Every draw milestone needs to be in the written contract, signed before mobilization.
Your payment section should cover four things:
- The draw schedule itself: Milestone name, trigger condition, dollar amount.
- Invoice timing: When you will send the invoice after the milestone is reached. "Invoice issued within 24 hours of milestone completion" is specific and sets expectations.
- Payment due date: Net 7 is standard for residential work. Net 10 to 15 is reasonable for larger commercial jobs. Net 30 lets clients treat you like a vendor, not a contractor.
- Late payment terms: A 1.5 percent monthly fee on overdue balances is common and enforceable in most states. Include it. Most clients never trigger it, but it changes the conversation when they try to slow-pay.
Write the milestones in plain language the client can verify themselves. "Rough-in complete" means the inspector signed off, not that you say it is done. Tie draws to objective conditions and you eliminate most payment disputes before they start.
Step 4: Present the payment schedule before the client signs
The payment schedule should never be a surprise. Walk the client through it on the estimate call or the site walkthrough, before they see the contract.
Say: "Here is how we structure payments. We collect a deposit upfront to cover materials. After that, you pay as we complete each phase. You only pay for work that is done."
That framing does two things. It explains the logic in terms of value to the client, and it filters out clients who push back hard on deposits. A client who will not pay 25 percent upfront to start a $30,000 job is telling you something important before you have spent a dollar.
If a commercial client or general contractor requires different terms, negotiate from your schedule, not from scratch. "Our standard draw schedule is five milestones. We can adjust the percentages to fit your payment cycle, but we need a deposit before mobilization." That is a reasonable position and most legitimate GCs will respect it.
Step 5: Invoice immediately when a milestone is hit
Progress billing only works if you bill on time. A draw schedule with a two-week invoicing lag is self-defeating.
The moment a milestone is reached, send the invoice. Same day if possible. For field contractors who do not carry a laptop on the truck, a mobile invoicing tool that lets you fire off a progress invoice from your phone makes this practical, not theoretical.
Each progress invoice should reference the milestone, the contract amount for that draw, and the remaining contract balance. Keep it simple. The client should be able to match the invoice to the milestone in the contract without calling you.
Progress payments in construction move faster when the paperwork is clean and immediate. Clients who receive a professional invoice the day rough-in passes inspection pay faster than clients who get a handwritten note four days later.
Troubleshooting: Common payment problems and how to handle them
The client is slow-paying a draw and you are ready for the next phase. Stop work. Do not start the next phase until the draw for the current phase is paid. This is not aggressive. It is in the contract. Say: "We are ready to move into framing next week. We need the rough-in draw cleared before we mobilize the crew." Most clients pay within 24 hours.
The client disputes whether a milestone is complete. This is why milestone descriptions need to be objective. "Rough-in passed final inspection" is not debatable. "Rough-in done to my satisfaction" is. If you have a signed-off inspection report, you have your answer. If the milestone is subjective, rewrite your contract for the next job.
A GC or commercial client requires lien waivers before releasing a draw. That is standard practice. Conditional lien waivers, signed at the same time as the check is cut, are reasonable. Unconditional lien waivers signed before payment clears are not. Know the difference.
The client wants to withhold the final draw over minor items. The final draw should be tied to a written punch list with specific items, not general satisfaction. When every item on the punch list is done, the draw is due. Add a clause: "Remaining balance due within five business days of punch list completion, regardless of subsequent requests outside original scope."
Advanced tip: Match your draw schedule to your material delivery schedule
On jobs with expensive materials, structure your deposit and first draw to land before material purchases, not after. If you are doing a $28,000 HVAC replacement and the equipment deposit to your supplier is $8,400, your client deposit needs to cover that before you place the order.
Talk to your supplier. Most HVAC, plumbing, and electrical distributors will work with contractors on 30-day terms once you have a relationship. That gives you a two to three week window between deposit and material delivery if a client is slow getting you the initial check. Do not rely on it as a default, but it is a useful buffer.
Map your cash outflows by week on any job over $15,000. Put the draw dates next to the outflow dates. If a draw comes in after a major material purchase, adjust the milestone or the draw percentage. The math has to work before you sign, not after you are three weeks in.
Frequently asked questions
Is a 50 percent deposit legal for a contractor to charge?
In most states, yes, there is no law prohibiting a 50 percent deposit on commercial work or for some types of residential work. But several states cap deposits for home improvement contracts. California's $1,000 or 10 percent cap is the most well known. Check your state licensing board's rules before you set deposit amounts for residential clients. For most jobs, 25 to 33 percent is sufficient and easier to defend.
What happens if a client stops paying mid-job?
Stop work immediately and send a formal written notice. Document the milestone that was completed and the amount owed. Most states allow you to file a mechanics lien if payment is not received within a specific window after notice. File it. A lien on the property is your strongest leverage and the cost to file is typically under $200. Do not keep working in hopes the client will pay. They rarely do.
Should I use a different payment schedule for commercial work versus residential?
Yes. Commercial clients, general contractors, and property managers often have structured payment processes that run on 30-day cycles. For those jobs, negotiate milestone-based payments that fit their approval process, but still require a deposit or mobilization payment before you start. Net 30 is common in commercial work. Net 7 to 10 is still worth asking for on smaller commercial jobs where you have leverage.
Do I need a written contract for a small job under $5,000?
Yes. A written contract protects you on a $1,500 job as much as a $150,000 one. It does not need to be complicated. Scope, price, payment schedule, start date, and a signature take 20 minutes to produce and can save you a four-figure dispute. Several states require written contracts for home improvement work above a low dollar threshold, sometimes as low as $500.
How do I handle change orders in a progress billing setup?
Treat every approved change order as its own mini-contract. Price the change, get a written sign-off, and add the cost to the relevant draw or create a separate line item if the change order is large enough. Never absorb change order work into your existing draws. If you do, you will complete more work for the same payment and your milestone math falls apart.
Can I charge interest on late payments?
Yes, if you include the late payment clause in your contract. A standard clause runs 1 to 1.5 percent per month on overdue balances, which is 12 to 18 percent annually. Some states cap this rate. The more important function of the clause is behavioral: clients who see a late fee in the contract pay on time far more often than clients who do not. Put it in every contract.
What is the difference between a progress payment and a retainage holdback?
A progress payment is a scheduled draw released when a milestone is complete. Retainage is a percentage, typically 5 to 10 percent of each draw, that the owner or GC holds back until final completion or a defined project close-out event. Retainage is standard on public and larger commercial projects. If you are working under a GC who holds 10 percent retainage, factor that into your cash flow projections. You will not see that money until the end.
Summary
A solid contractor payment schedule does one thing: it keeps your cash flow positive from day one to final draw. Collect 25 to 33 percent upfront. Build three to five milestones around verifiable conditions, not calendar dates. Write the schedule into every contract. Invoice the same day a milestone is hit. Stop work when a draw is overdue. None of this is complicated, but it requires discipline, especially on the first few jobs where a client pushes back. Do it consistently and you stop floating jobs out of your own pocket. That is the difference between a busy contractor and a profitable one.
The hardest part of this system is not the math. It is the paperwork speed: getting the invoice out the moment the milestone lands, tracking which draws are open, and following up without letting it fall through the cracks between jobs. That is exactly the kind of friction Krue is built to eliminate, so the business side of the job moves as fast as the work does.
