Deposits and Payment Terms for Contractors: The Math

Size the deposit from what you have to buy

Start with cash out, not a round percentage. List what you must pay for before the first day of work: special-order equipment, a permit fee you front, a dumpster or rental booked in advance. Your own payroll is usually paid as it is worked, so it is not on the list; add any sub or labor deposit you must pay up front.

Example job (our numbers, not typical ones): a $9,800 replacement with $3,650 of special-order equipment.

A deposit that covers the equipment would be 37.24% of the price. A 10% deposit leaves you carrying $2,670.00 until the next payment arrives. Neither number is "right"; the point is to know which one you are choosing.

Cash-out is also why a deposit is not profit. A deposit is not profit until the work is delivered; how a deposit must be held or accounted for is a question for your attorney or accountant.

Rules that limit or attach duties to deposits

There is no single national deposit rule for ordinary home service work, so what applies depends on your state, the kind of work and the size of the contract. Three examples from different regions show the range:

• Florida does not cap deposits in the statute, it attaches duties. Under section 489.126, a contractor who takes an initial payment of more than 10 percent of the contract price for residential repair, restoration, improvement or construction must apply for any required permits within 30 days of payment and start work within 90 days after the permits issue, unless there is just cause or the customer agrees in writing to longer. The same section sets criminal penalties that rise with the amount involved.
• New York regulates home improvement contracts above $500 in aggregate price under section 770. Under section 771, a contract that provides for progress payments before substantial completion must contain a schedule showing each payment as a sum in dollars and cents, and each amount must bear a reasonable relationship to the work to be performed. The same section requires a notice about depositing pre-completion payments under the state's Lien Law, with a bond or letter of credit as an alternative.
• Ohio's home construction service law covers contracts above $25,000 on dwellings of up to three units, for suppliers who carry at least $250,000 of general liability insurance, under section 4722.01. Among its prohibited acts in section 4722.03 is keeping payment for goods or services not delivered under the contract without a full refund within a reasonable time.

Notice that New York's coverage threshold is $500 and Ohio's is $25,000, while Florida's duties turn on a 10% initial payment. Some states instead cap the deposit itself by a dollar amount and a percentage; the estimate guide shows how one state does it. A small repair may sit outside a law that reaches a remodel. Whether your job is covered, and what your state requires in your contract, is a question for your state licensing board or an attorney.

Progress payments: bill what the work earns

For a job that runs more than a few days, a staged schedule keeps your cash position steadier and fits rules like New York's, which call for a dollars-and-cents schedule where progress payments are used (check your own state). Tie each stage to something you can both see.

For the $9,800 example:

By the second payment you have received $4,900.00 against $3,650.00 of equipment, so the equipment is covered before the last day. Write the schedule into the estimate in dollars and cents, name each trigger, and state the due date. Percentages alone leave room for argument about what "50%" of a changed price means; amounts tied to a signed price do not. Changes still go through a written change order; change orders for trade jobs shows how to price one and restate the schedule.

If your sale is covered, meaning a consumer sale at the customer's home as the rule defines it, the FTC's Cooling-Off Rule applies to covered sales. Under 16 CFR 429.1(g), a seller must refund all payments within 10 business days after receiving a valid cancellation notice, and the buyer has three business days to cancel. That includes the deposit, and so for a covered sale, think about when you commit to non-returnable special orders.

What waiting costs: net terms

Net 30 normally means the full amount is due 30 days after the invoice date. Whatever terms you give, waiting has a cost you can compute: the amount, times your cost of money, times the fraction of a year.

Use 10% a year as an example rate, not a recommendation; substitute your line of credit's rate or what the cash would earn. On the $9,800 invoice:

The formula is $9,800 × 0.10 × days ÷ 365. That is a small fraction of price at 30 days and a larger one at 90, and it ignores the risk that the invoice is never paid, which is a separate cost.

Compare it with the alternatives. As of the rates page's "accurate as of 09/18/2026" date, QuickBooks Payments lists 2.99% for cards on invoices and 1% for ACH. On $9,800 that is $293.02 for a card and $98.00 for ACH. With the example shop's 10% net profit on price, the job's profit is $980.00, so if you absorb the card fee, it takes 29.9% of it (the 10% is a convention from our labor rate calculator, not a typical figure). Our credit card fees guide covers surcharge rules and how to price the fee in.

Reading the figure: a 30-day wait at the example rate costs $80.55, less than the $293.02 card fee, and a 90-day wait costs $241.64. Waiting on net terms is not free either.

Late fees: the math, and the part that is a legal question

A late fee or interest charge has to be disclosed before the work and applied consistently to mean anything; what makes one enforceable is a state question. The arithmetic is simple. A 1.5% monthly charge on $9,800 is $147.00 a month; over 12 months that is $1,764.00, an 18% simple annual rate, or 19.56% if it compounds monthly. A flat fee works differently: a $50 charge on a $9,800 invoice is 0.51%, but on a $200 invoice it is 25%.

Whether a given late fee or interest rate on an unpaid invoice is allowed is a state-law question. Rules on late fees and interest vary by state. We are not giving advice on this. Before you print a late fee on an estimate or invoice, ask your attorney or your state's consumer protection or licensing agency what your state permits and what wording it expects.

Next step

Take your three most common jobs and fill in the first table above for each: price, what you buy before the work starts, and that amount as a share of the price. Then write the payment schedule into your next estimate in dollars and cents, with a trigger and a due date for each payment, using the estimate generator and the invoice generator. Have an attorney read the deposit and late-fee wording once, for your state, and reuse it.