Should a Contractor Ask for a Deposit Before Starting Work?
Should a contractor ask for a deposit before starting work? Yes, and the contractors who skip it are usually the ones chasing payment later. A reasonable deposit commits the client, covers the materials you have to order before day one, and filters out the people who were never serious. The catch is that the deposit has to be reasonable and legal, and the legal part has real numbers attached. In California, the down payment on a home improvement contract cannot exceed $1,000 or 10 percent of the contract price, whichever is less.
There is a reason both sides feel uneasy about deposits. Contractors have been burned by clients who cancel after materials are ordered. Homeowners have been burned by contractors who take the money and vanish. The deposit sits exactly on that fault line, which is why the rules around it are stricter than most contractors realize.
The decision rules by job type
If the job requires custom-ordered materials before work can start, take a deposit that covers the material order and nothing more. Special-order cabinets, custom windows, stone that gets cut to your measurements: once you order it, you own it, so the client should fund it. Tie the deposit to the receipt. Show the client what their money bought.
If the job is labor-only and wraps up in under a week, skip the deposit and bill on completion. A one-day repair does not need mobilization money, and asking for a deposit on a small job signals the wrong thing. You will get paid faster with a clean invoice at the end than with a deposit negotiation at the start.
If the job runs longer than a month, do not rely on one deposit. Take a modest deposit to start, then structure the rest as progress payments tied to completed phases: demo done, rough-in done, finishes done. Each payment follows finished, inspectable work. That structure protects you from a client who goes quiet and protects the client from a contractor who disappears.
If the client pushes back on any deposit at all, treat it as information. A homeowner who will not put $500 down on a $20,000 job is telling you something about how the final invoice will go. You are allowed to walk away from that signal.
What the law actually caps
California is the strictest and most specific: Business and Professions Code section 7159.5 says the down payment on a home improvement contract may not exceed $1,000 or 10 percent of the contract price, whichever is less, and it is against the law for a contractor to collect payment for work not yet completed or materials not yet delivered. Note the "whichever is less": on a $5,000 contract, 10 percent is $500, so a $1,000 deposit would already be illegal. Several other states cap deposits too, with different numbers and different scopes. These caps generally apply to residential home improvement work, not to commercial projects.
The practical takeaway for contractors: know your state's cap before you print your contract template, and put the deposit terms in writing with the cap printed on the page, the way California's sample contract does. For homeowners: if a contractor demands most of the contract price upfront, that is the red flag. A legitimate deposit covers mobilization and ordered materials, not the whole job.
The part nobody likes to admit
Here is where I hold two thoughts at once. Deposits protect honest contractors from flaky clients, and they are also the tool dishonest contractors use to steal. Both things are true, and no deposit policy fixes that. A deposit that is small, written into a real contract, tied to actual costs, and within the legal cap is a fair business practice. A deposit demanded in cash, with no contract, for half the job, is a warning. The difference is not the deposit. It is everything around it.
Build the invoice with the deposit and progress schedule spelled out, so the payment terms are on paper before anyone picks up a tool.
Frequently asked questions
Should a contractor ask for a deposit before starting work?
Yes, a reasonable deposit is standard practice. It commits the client to the job, covers materials you must order before day one, and filters out clients who were never serious. The deposit should be modest, stated in a written contract, and within your state's legal cap.
How much deposit can a contractor legally ask for?
It depends on the state. In California, the down payment on a home improvement contract may not exceed $1,000 or 10 percent of the contract price, whichever is less. Several other states have similar caps. Check your own state's contractor licensing board before setting your deposit policy.
Is it a red flag if a contractor asks for a large deposit?
A deposit over the legal cap, or a demand for most of the contract price before work starts, is a red flag. Legitimate deposits cover mobilization and ordered materials. It is also against the law in California for a contractor to collect payment for work not yet completed or materials not yet delivered.
What is the difference between a deposit and a progress payment?
A deposit is paid before work starts to secure the job and cover early costs. Progress payments are paid as phases of work are completed, with each payment tied to finished, inspectable work. Use deposits to start, and progress payments to keep cash flow moving through the job.
Can a homeowner get a deposit back if the contractor never starts?
Usually yes. A deposit paid for work that never happened is recoverable, and most states give homeowners a cancellation window on home improvement contracts. Document everything, send a written demand for a refund first, and if the contractor refuses, file a complaint with your state's contractor licensing board.
Related reading: What Payment Terms to Put on a Contractor Invoice · The Contractor Invoice That Gets Paid Faster · Progress Invoices Explained · Client Won't Pay: What to Do