How Much Deposit Should a Contractor Ask For?

Set the deposit between a floor and a ceiling

A good deposit isn't a percentage borrowed from another contractor. It's sized to the job: big enough that you aren't out of pocket if the customer backs out, small enough that the customer isn't paying for work that hasn't happened. A deposit does two things:

• It covers what you commit before the work starts: equipment ordered for this house, special-order materials, permit fees, design or engineering time.
• It holds the date. When a job blocks out days on your calendar, you turn other work away, and the deposit makes the customer as committed to that date as you are.

If a job involves neither, skip the deposit. A drain clearing, a breaker swap or a furnace repair with parts from the truck gets paid when the work is done.

When a deposit fits, work out two numbers.

The floor is what you'd lose if the customer cancelled the day after you ordered:

1. Items your supplier won't take back, at full cost.
2. Restocking fees on items it will take back. Get the return terms in writing before you quote.
3. Permit, engineering and design costs already paid.
4. For jobs that block out whole days, an amount for time you couldn't resell on short notice.

The ceiling is the lower of two amounts: your state's limit, if it has one, and what you'll spend before the next payment arrives. Past that point the deposit stops protecting you and starts funding your business with the customer's money.

Pick a round number between the two. If the ceiling comes out below the floor, don't absorb the gap: add a progress payment due when the materials arrive, as in the roofing example below.

Example: An HVAC contractor sells a $14,000 heat pump replacement. Equipment and line set cost $6,000, the distributor takes returns for a 15% restocking fee, and the permit is $250. Floor: the $900 fee plus the $250 permit, so $1,150 is at risk if the customer cancels after the order. Ceiling: the $6,250 spent before the balance comes in, unless the state's limit is lower. With no lower limit, a $3,000 deposit sits between the two, with the $11,000 balance due when the system is running. The numbers are made up for illustration.

Example: A detailer books a two-day paint correction and ceramic coating for $1,600. The coating kit opened for this car costs $150, and two days of bay time are hard to refill on short notice. A $400 deposit covers the product and part of the lost time if the customer doesn't show; the $1,200 balance is due at pickup. The numbers are made up for illustration.

What a deposit covers in each trade

The two questions, what you're buying and what time you're blocking out, play out differently by trade.

Check your state's limit before you set a policy

State law can cap your deposit no matter what your materials cost, so look it up before a payment schedule goes on any contract. The FTC tells homeowners not to pay the full amount up front and notes that some states limit down payments ¹. Your state's rule may say "down payment" rather than "deposit," so search for both.

California is one example. Its down payment on a home improvement contract can't be more than $1,000 or 10% of the contract price, whichever is less ². After that, each progress payment can't exceed the value of the work performed and materials delivered, and collecting for work not yet done or materials not yet delivered is against the law there ³. Other states set different limits, or none, so don't carry one state's rule into another.

Check your state's contractor licensing board, its attorney general or consumer protection office, and the home improvement contract law on the legislature's website. Rely on the rule text or the agency's own summary, not a forum post. Then answer these questions and keep the answers with your price sheet:

Detailers work on cars, so look at your state's general consumer protection rules rather than its home improvement law.

Note: This guide explains how deposits work; it isn't legal advice for your state. Have a local attorney review your contract and payment schedule once, and again before you take work in another state.

Example: A roofer sells a $16,000 retail replacement with a $7,000 materials order, in a hypothetical state whose down payment cap comes to far less than $7,000 but which allows a payment for delivered materials. The roofer takes the allowed amount at signing, bills $7,000 on delivery and buys on 30-day supplier terms, so the supplier's bill comes due after the customer pays. The balance is due after the final walkthrough. The numbers are made up for illustration.

Hold the deposit until any cancellation window closes

Money spent on a special order is gone if the customer can still cancel for a full refund. Before you spend a deposit, know whether a cancellation right applies and when it ends.

The federal rule is the FTC's Cooling-Off Rule:

• Where: sales made in the buyer's home, workplace or dormitory, plus places a seller uses only temporarily, like a hotel room, fairground or convention center.
• How much: purchases of $25 or more in the home, and $130 or more at one of those temporary spots ⁴.
• How long: the buyer can cancel for a full refund until midnight on the third business day after the sale. Saturdays count toward the three; Sundays and federal holidays don't ⁴.

Two details catch contractors out:

• An invited visit can still be covered. The rule's definition of a door-to-door sale takes in sales made "in response to or following an invitation by the buyer," as long as the buyer agrees to the purchase away from the seller's place of business ⁵. The homeowner who called you for a quote and signed at the kitchen table can be covered.
• The emergency exclusion is narrow. It requires all three: the buyer initiated the contact, the work is needed for a bona fide immediate personal emergency, and the buyer hands you a separate statement, handwritten, dated and signed, that describes the emergency and gives up the right to cancel ⁵. A burst pipe the homeowner called you about can qualify. A roof you knocked on can't.

It comes up in every trade, from kitchen-table HVAC, roofing and solar contracts to a coating package sold at a car show held at a fairground. Your state may add cancellation rules of its own, so check those too.

For any sale that might be covered:

1. Assume the rule applies whenever you're unsure.
2. Give the cancellation notice with the contract, after a lawyer has checked it against the federal rule and your state's rules.
3. Write the date the window closes on the contract and in your schedule.
4. Leave the deposit alone until then: no orders, no crew booked. If the customer cancels in time, refund all of it quickly and confirm in writing.
5. Order the next morning and tell the customer it's in.

Example: An electrician sells a standby generator at the customer's dining table on a Friday. Saturday is business day one, Sunday doesn't count, Monday is day two and Tuesday is day three, so the customer can cancel until midnight Tuesday, as long as none of those days is a federal holiday. The generator gets ordered Wednesday morning.

At signing: "Because we signed this at your home, you can cancel until midnight on [day] and get your whole deposit back. The cancellation form is in your copy. We won't order anything before [day], and I'll text you when the order goes in."

Use deposits and progress payments together

A deposit starts the job; progress payments keep you from financing the rest. On any job that runs more than a few days or carries a large materials bill, use both.

Tie each progress billing stage to an event, not a calendar date that slides with the weather:

• Retail roofing: deposit, a payment on material delivery, the balance after the final walkthrough. Insurance jobs follow the insurer's steps; see how to invoice roofing jobs.
• Solar: deposit, then permit approval or equipment delivery, installation, and final inspection or permission to operate; see how to invoice solar installations.
• Plumbing repipes and electrical remodels: deposit, a payment when rough-in passes inspection, the balance after final inspection.
• Multi-day detailing and large pressure washing jobs: deposit to hold the dates, balance at completion.

If a mid-job change needs special-order material, collect a deposit on it before you order; how to handle change orders covers getting it approved in writing first.

Example: A plumber quotes a $9,000 whole-house PEX repipe: $2,000 at signing toward the permit and materials, $4,000 when the rough-in passes inspection, and $3,000 after the final inspection and walkthrough. Midway, the customer approves a $350 change order to replace the main shutoff valve, so the final payment becomes $3,350. The numbers are made up for illustration.

Send each progress invoice the day you reach the milestone, with a way to pay from a phone; how to get paid faster covers payment methods and reminders.

Write the deposit terms into the contract

Most deposit arguments are about terms nobody wrote down. Put these in the contract or the estimate the customer signs:

• Amount, method and purpose: a dollar figure, how it's paid, and the equipment, materials or dates it covers.
• How it's credited: in full against the price, as a dated credit on the final invoice.
• The rest of the schedule: each payment and the event that triggers it.
• Cancellation both ways: what you refund if the customer cancels after any window, and a full refund if you cancel or can't start.
• Who you are. The FTC tells homeowners to look for the contractor's name, address, phone number and license number in a contract, along with estimated start and completion dates ¹.

Wording you can adapt, after a lawyer checks it for your state:

"Deposit. Customer will pay a deposit of $[amount] on signing. It pays for [the equipment or special-order materials listed in this agreement] and reserves a start date of [date]. It is credited in full against the contract price on the final invoice. We will not order materials or equipment before [date, the day after any cancellation period ends]."

"Cancellation by customer. If you cancel after [date], we will refund the deposit minus documented costs we can't recover, such as non-returnable special-order items, supplier restocking fees and permit fees already paid, with copies of those receipts."

"Cancellation or delay by contractor. If we cancel, or don't start within [number] days of the scheduled date for reasons within our control, you may cancel and we will refund the deposit in full."

"Rescheduling. If weather or your request moves the start date, the deposit carries over to the new date."

Why "non-refundable" is a weak word

Printing "non-refundable" on a deposit doesn't override a legal right to cancel: on a sale the Cooling-Off Rule covers, a buyer who cancels inside the window is owed a full refund ⁴. After the window, whether you can keep a deposit depends on your contract and your state's law. Keeping only documented costs you can't recover is easier to explain and easier for a customer to sign.

When the deposit mostly holds a date, as in detailing or pressure washing, state a notice period instead: "Reschedule with at least [48 hours'] notice and your deposit moves to the new date. With less notice, [part or all] of it is kept for the reserved time." Detailers will find late-cancellation terms in how to invoice auto detailing jobs.

Ask for it as part of the plan

Ask for the deposit while you walk through the schedule, say what it pays for, and say when it comes off the bill. Homeowners are warned about contractors who push for a decision on the spot or want cash or full payment up front ^{6 1}, so a modest deposit with a stated purpose and a written schedule reads as the opposite.

• HVAC or electrical: "To hold your install on [date], we take a $[amount] deposit. It pays for the [heat pump or panel] we order for your home and comes off your final bill. The balance is due when everything's running."
• Roofing: "The $[amount] deposit covers the shingles, underlayment and flashing for your roof. The next payment is due when materials are delivered, and the balance after we walk the finished roof with you."
• Solar: "You'll pay $[amount] when you sign, for the design and permit paperwork. After that, each payment lines up with a step you can see: equipment delivered, system installed, and the utility's approval to turn it on."
• Detailing: "To hold your two days on [dates], I take a $[amount] deposit. It goes toward the total, and if you move the date with at least [notice], it moves with you."
• Pressure washing: "For a job this size we take $[amount] to book the dates. If rain moves us, your deposit moves too."

When the customer pushes back:

• "Why do you need a deposit?" "Because I'm ordering [item] for your home specifically, and my supplier won't take it back for free. Nothing gets ordered until [date]."
• "Can I just pay it all now?" "Thanks, but we bill as the work gets done: the deposit now, [milestone] next, and the balance when you've seen the finished job." Keep to the schedule, and to your state's limit, even when a customer offers more.
• "The other company didn't ask for one." "That's fine. Ours comes off the total, and here's the whole schedule in writing so you can compare."

Handle the money like it isn't yours yet

Until the work is done, a deposit is money you owe the customer, in work or in a refund.

• Send a receipt the same day with the date, amount, method, job and how it will be credited. Keep it with the signed terms; if a customer disputes a card payment with their bank, those are what you'll give your processor.
• Keep each deposit with its own job. When next week's deposits are paying for this week's shingles, one cancellation leaves two jobs short.
• Ask your bookkeeper or CPA how to record deposits and when they count as income for taxes.
• When you owe a refund, pay it fast, with a short statement of anything you kept and why.

Redline, which is chat-first field service software, can request the deposit when the customer approves the estimate.

Deposit checklist

• Before you quote: supplier return terms in writing; your state's deposit limit and cancellation rules looked up.
• In the contract: amount, purpose, credit, schedule, ordering date, refund terms, license number and estimated dates.
• At signing: cancellation notice given wherever the rule could apply; the window's end date written down.
• After signing: receipt sent; deposit untouched until the window closes; order placed the next morning.
• At the end: deposit credited on the final invoice.