Cash flow kills more small contracting businesses than bad estimates do. You can price a job perfectly and still go under if the payment schedule has you buying materials, paying crew, and carrying the float for six weeks before you see a dollar back. The deposit and the draw schedule aren't paperwork — they're the mechanism that decides whose money is at risk at any given point in the job.
What a deposit is actually for
A deposit isn't a fee for showing up. It exists to cover two specific things: materials you have to buy before work starts, and the opportunity cost of blocking off your schedule for this job instead of another one. If you're not buying anything up front and the job starts tomorrow, a large deposit is harder to justify. If you're ordering custom cabinets or a container of tile next week, it's not optional — you need the cash before you commit to the purchase order.
That framing also tells you how to size it. A material-heavy job (kitchens, cabinetry, anything with special-order fixtures) justifies a bigger up-front number than a labor-heavy job (painting, most demo, framing labor where you're supplying little beyond nails and lumber you can return). Two jobs at the same total price can reasonably carry very different deposits once you look at what's actually being purchased before day one.
What typically drives the number:
- Material cost as a share of the job. If materials are 60% of a $40,000 kitchen, a deposit in the range of what covers the first material order is defensible math, not an arbitrary percentage.
- Job length. A two-day job doesn't need a deposit structure at all — invoice on completion. A ten-week job needs one, because nobody should be carrying ten weeks of labor cost unpaid.
- Whether you've worked with the customer before. A repeat client with a payment history earns more slack. A new customer, especially one who negotiated hard on price, is exactly who you structure the schedule tightest around — not out of suspicion, but because you have no data on how they pay.
- Local norms and licensing requirements. Deposit expectations vary by trade and region, and in some states the amount you're legally allowed to collect up front is capped.
On typical residential jobs, deposits in the 10–30% range are common, skewing higher for material-heavy or highly custom work and lower for straightforward labor jobs. Treat that as a starting point to adjust from, not a rule.
Check your state's deposit cap before you set a number
Several states put a hard ceiling on what a contractor can collect as an up-front deposit, sometimes as a flat percentage, sometimes as a flat dollar amount regardless of job size. These laws exist because unlicensed and disappearing contractors historically used large deposits to collect money and vanish, and the caps are usually tied to your state's contractor licensing law.
Don't guess at the number and don't assume your state doesn't have one. Look up your own state's contractor licensing board or consult your attorney or accountant before you finalize a deposit policy — this is a case where being wrong isn't just a bad business decision, it can be a licensing violation. Build your payment schedule template around whatever your state actually allows, then apply it consistently.
Progress draws: two structures, one worked example
Once the deposit is collected, the rest of the payment schedule needs a similar level of intentionality. There are two common ways to structure it.
Milestone-based draws. Payment is tied to specific, verifiable points of completion — "due when framing inspection passes," "due when tile is set," "due at substantial completion." This is the more common structure for remodels, because milestones are visible: the customer can see that framing is done, so there's little room for dispute about whether the draw is earned.
Percentage-of-completion draws. Payment is scheduled by percentage of the total job value, often tied to time rather than a specific deliverable — 25% at two weeks, 25% at four weeks, and so on. This works better for jobs without clean visual milestones, or longer jobs where you want steady cash flow rather than lumpy payments tied to whenever a particular phase happens to finish.
Milestone-based draws are generally the better default for remodel and construction work specifically because they're self-documenting — the customer isn't taking your word for progress, they're looking at it.
Worked example — a $48,000 kitchen remodel, roughly 6 weeks:
| Draw | Trigger | Amount | Running total |
|---|---|---|---|
| Deposit | Contract signed, before ordering cabinets | $9,600 (20%) | $9,600 |
| Draw 1 | Demo complete, rough electrical/plumbing done | $12,000 (25%) | $21,600 |
| Draw 2 | Cabinets installed | $12,000 (25%) | $33,600 |
| Draw 3 | Countertops set, tile complete | $9,600 (20%) | $43,200 |
| Final | Punch list complete, final walkthrough | $4,800 (10%) | $48,000 |
Notice the shape: the deposit covers the cabinet order (the single biggest material commitment on this job, and the longest lead time), the two middle draws roughly track when you're paying the most labor and buying the most material, and the final draw is a real amount — not a token $200 — but small enough that it's not a decision point where a customer suddenly reconsiders the whole project.
Sizing the final payment
The final draw does two jobs at once, and they pull in opposite directions. It needs to be large enough that you're not chasing a trivial invoice for weeks after the crew is gone — collecting $200 from someone is disproportionately annoying relative to the amount. But it also needs to be small enough that it isn't the customer's last real leverage point, because if the final payment is 30% of a $48,000 job, you've just given the customer a $14,400 incentive to find something to complain about during the final walkthrough.
Something in the 5–10% range for the final draw is a common middle ground: enough to matter to you, not enough to tempt manufactured disputes over the punch list.
What to actually put on the estimate
The payment schedule belongs on the estimate document itself, not a verbal agreement or a separate conversation. At minimum, write down:
- Each draw amount, in dollars, not just percentages — percentages of what total becomes ambiguous the moment a change order changes the total.
- What triggers each draw. "Draw 2 due upon cabinet installation" is enforceable. "Draw 2 due partway through" is not.
- Due dates or payment windows. "Due upon completion of trigger event" is fine, but pair it with a payment window — net 3, net 5 — so there's a defined point where a payment becomes late.
- Late payment terms. A late fee or interest provision, even a modest one, changes behavior more than its dollar value suggests. It signals the schedule is a real term of the agreement, not a suggestion.
- What happens if the job pauses. If the customer delays a decision (tile selection, a change order approval) and work stops, note whether draws tied to time still apply or only draws tied to milestones.
This is the same principle that makes a well-written estimate win jobs in the first place — specificity reads as competence. A payment schedule with real triggers and real dates tells the customer you run a business that has done this before. A vague one invites renegotiation at the worst possible moment.
How change orders affect the schedule
Change orders add cost, and if your payment schedule is percentage-based, they also change what each remaining draw is worth in dollars — which is exactly why writing draws as fixed dollar amounts on the original schedule, then adding a new line for the change order's own payment terms, causes fewer arguments than trying to recompute percentages of a moving total. If you haven't nailed down your change order process yet, this post covers it in full — the short version for payment purposes is that a change order should carry its own price and, on any job with a real draw schedule, its own payment timing (due at signing, due at the next draw, or due on completion, stated explicitly).
Where contractors get burned is treating change order money as something to collect "at the end, with everything else." That's how a $340 outlet move turns into a few thousand dollars of accumulated changes sitting unpaid until the final invoice, at which point it's tangled up with the same final-payment leverage problem described above.
The underlying rule
Every part of this — deposit size, draw triggers, final payment size — comes back to one question: at any point in the job, who's carrying the risk? A payment schedule that has you buying materials and paying crew for weeks before the next draw means you're financing the job out of pocket, whether or not that was the intent. A payment schedule that front-loads too aggressively past what your state allows or what the job actually requires reads as a red flag to the customer. The schedule that works sits close to your actual cash outlay at every point in the timeline — no more, no less — and puts it in writing before the first day of work.
JobPencil estimates include a payment schedule section alongside labor, materials, and margins, so draws are part of the same document the customer already reads and signs — not a separate conversation that happens after the price is agreed to. Build one free in the browser, no account required.