How to Handle a Deposit on a Remodel
A homeowner wants you to remodel their kitchen. The project is $42,000. You're excited — this is a big job. But you're also nervous, because $42,000 in materials and labor is a lot of money to front.
This is where deposits come in. A deposit isn't just about getting cash upfront — it's about qualifying the customer, protecting your cash flow, and setting the professional tone for the entire project.
Get deposits right and your remodel business runs smoothly. Get them wrong and you're financing other people's homes with your bank account.
Why Deposits Matter on Remodels
Remodels are different from service calls. A plumber fixing a leaky faucet is there for two hours. A remodel contractor is committed for weeks or months. The financial risk is completely different.
Without a deposit: - You buy $15,000 in cabinets with your money - You pay your crew $4,000/week out of pocket - The homeowner can change their mind after demo and you're stuck - You're essentially giving the customer a zero-interest loan
With a proper deposit structure: - The customer has financial commitment from day one - You have cash to buy materials without dipping into reserves - Payment milestones keep cash flowing throughout the project - Cancellation is costly enough that customers think seriously before backing out
How Much Deposit to Charge
The right amount depends on the project size and your state's laws.
State Deposit Limits
Some states cap how much contractors can collect upfront:
- **California:** $1,000 or 10% of the contract price, whichever is less (for home improvement contracts)
- **Maryland:** 33% maximum
- **Nevada:** 10% or cost of special-order materials, whichever is greater
- **Most states:** No statutory limit, but 33-50% is standard practice
Check your state's contractor licensing board. Exceeding the legal limit can result in fines, license suspension, or voided contracts.
Recommended Amounts by Project Size
**Small remodels ($5,000-$15,000):** - 50% deposit, 50% on completion - Example: $8,000 bathroom refresh = $4,000 deposit
**Medium remodels ($15,000-$40,000):** - 33% deposit, 33% at midpoint, 34% on completion - Example: $28,000 kitchen remodel = $9,240 deposit, $9,240 at cabinet install, $9,520 at final walkthrough
**Large remodels ($40,000+):** - 20-25% deposit, then milestone payments - Example: $65,000 whole-house remodel = $16,250 deposit, then four payments of $12,187.50 tied to demo complete, rough-in complete, finishes installed, and final walkthrough
Materials-First Strategy
Some contractors structure the deposit around materials cost specifically:
"Deposit equals 100% of materials cost plus 25% of labor."
On a $30,000 project with $12,000 in materials and $18,000 in labor: - Deposit: $12,000 + $4,500 = $16,500 - Remaining: $13,500 in two milestone payments
This approach makes sense to customers because they can see the deposit covers the stuff being purchased for their home.
When to Collect the Deposit
Collect the deposit before any work begins. Before demo. Before ordering materials. Before scheduling your crew.
The timeline: 1. Customer approves the quote 2. You send the contract 3. Customer signs the contract 4. You invoice the deposit 5. Deposit clears your account 6. You order materials and schedule the job
Never start work before the deposit clears. "The check is in the mail" and "I'll Venmo you tomorrow" are not cleared funds. Wait for the money to actually land in your account.
For credit card deposits, the charge processes in 1-2 business days. For ACH, 3-5 business days. For checks, wait for the check to clear (3-7 business days depending on amount).
Structuring Milestone Payments
Milestone payments are the key to healthy cash flow on remodels. Instead of deposit + final payment, break the project into stages with payments tied to each.
Kitchen Remodel Example ($35,000)
| Milestone | Amount | When | |-----------|--------|------| | Deposit | $11,550 (33%) | Contract signing | | Demo complete | $5,250 (15%) | After demo, before rough-in | | Rough-in inspection passed | $5,250 (15%) | After plumbing/electrical rough-in | | Cabinets and countertops installed | $7,000 (20%) | After cabinet/countertop install | | Final walkthrough | $5,950 (17%) | After punch list complete |
Why this works: - You never go more than 1-2 weeks without a payment - Each payment is tied to visible progress the customer can verify - The final payment is small enough that the customer doesn't try to withhold it over minor punch list items - Your cash position stays positive throughout the project
The Golden Rule: Never Be Underwater
At every milestone, the total payments received should exceed your total costs incurred. If you've spent $20,000 on materials and labor but only collected $11,000, you're underwater. Restructure your milestones so this never happens.
Contract Language for Deposits
Your deposit terms need to be in writing. Handshake agreements on $30,000 projects are asking for trouble.
Essential Contract Clauses
**Deposit clause:** "A deposit of [amount] is due upon contract signing. Work will not commence until the deposit is received and cleared. The deposit is applied to the total contract price."
**Milestone payment clause:** "Payments are due within 3 business days of milestone completion. Contractor will notify Customer in writing when each milestone is reached. Failure to pay within 7 days of notification constitutes a material breach."
**Cancellation clause:** "If Customer cancels after contract signing but before work begins, the deposit will be refunded minus a $500 administrative fee and the cost of any materials already ordered. If Customer cancels after work begins, all completed work and materials delivered are due in full."
**Change order clause:** "Changes to the scope of work require a written change order signed by both parties. Change orders exceeding $1,000 require a 50% deposit before work begins. All change orders extend the project timeline by a minimum of [X] days."
**Stop work clause:** "If any payment is more than 7 days past due, Contractor may stop work and demobilize without liability. Work will resume within 5 business days of receipt of overdue payment plus a $250 remobilization fee."
These clauses aren't aggressive — they're protective. Professional customers expect them. The ones who object to fair contract terms are the ones most likely to cause payment problems.
Handling the Deposit Conversation
Some contractors feel awkward asking for deposits. Don't.
Every general contractor charges deposits. Every custom home builder charges deposits. Every cabinet shop requires payment before fabrication. This is standard in construction.
The conversation:
"To get your project on our schedule, we need a deposit of $12,000. That covers your materials order and reserves your spot. Once the deposit clears, I'll order your cabinets — they have a 4-week lead time, so the sooner we get the deposit, the sooner we can start."
Notice: no apology, no hedging. Just a clear statement of what's needed and why.
When a Customer Pushes Back
If they ask for a smaller deposit: "We can discuss the amount, but I can't order materials without covering the material cost. If we reduce the deposit, we'll need to delay the material order until we receive additional funds."
If they refuse a deposit entirely: Walk away. A customer who won't put money down is a customer who will be difficult to collect from later. You don't need the headache.
If they want to pay everything at the end: "For the protection of both parties, milestone payments are standard in remodeling. This way you only pay as work is completed, and we can keep the project moving without interruption."
Deposit Accounting
Keep deposits clean in your books:
1. Record deposits as "unearned revenue" or "customer deposits" — not as income 2. As you complete milestones and invoice for them, move the deposit amount to revenue 3. Keep deposit funds in your operating account, not a trust account (unless your state requires trust accounting for deposits) 4. Issue a receipt for every deposit received
Your accountant will thank you at tax time.
Refund Situations
Sometimes you need to return a deposit. Handle it professionally:
**Customer cancels before work starts:** Refund minus administrative fee and any non-returnable material orders. If you ordered custom cabinets, that cost is real and non-refundable.
**You can't complete the job:** Full refund of unearned deposit. If you collected $12,000 and completed $8,000 in work, refund $4,000.
**Dispute over quality:** This is where your contract protects you. If the work meets the contract specifications, the deposit is earned. If there's a legitimate quality issue, fix it first — don't just refund.
Document everything. Photos at every stage. Written milestone confirmations. Email confirmations of scope changes. The more documentation you have, the less likely a deposit dispute becomes.
The Bottom Line
Deposits on remodels aren't optional — they're how professional contractors manage cash flow, qualify customers, and protect their business. Charge the right amount, collect before starting, structure milestones throughout, and put it all in writing.
[CrewDash](https://crewdash.co/demo) handles deposit invoicing, milestone payments, and automatic reminders so you get paid on schedule throughout the project. See the interactive demo.
[Start your free trial](https://crewdash.co/register) and set up your first milestone payment schedule today.