Contractor App Builder

Contractor Invoicing: Payment Terms, Deposits and Getting Paid Faster

How to set payment terms and deposits that are legal and fair, what every contractor invoice should include, what card and bank payments really cost, and a follow-up routine that shortens the wait.

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Key Takeaways

  • Payment terms belong in the contract, not the invoice. Agree on the deposit, milestones, due dates and late charges when the customer signs. The invoice just applies them.
  • Deposits are capped in some states. California limits home improvement down payments to 1,000 dollars or 10 percent of the contract, whichever is less, and bars billing ahead of work.
  • Invoice the day a milestone is reached. Every day between finishing and invoicing is a day you finance the customer’s job.
  • Make paying easy, and know the fees. Card payments cost around 2.9 to 3.3 percent plus 30 cents with common processors; bank transfers are often capped at a few dollars. On large invoices, steer customers to bank payment.
  • Follow up on a schedule. A polite reminder before the due date, on it, and at set intervals after, with a phone call when it is late, collects more than waiting and hoping.

Quick-Start Prioritization Framework

Job typeTypical payment structureWatch for
Small repair or service callDue on completionCollect on site when possible
Residential remodelDeposit, then milestone payments tied to visible stagesState deposit caps and no billing ahead of work
New construction or larger residentialMonthly progress billing against a schedule of valuesLender draw process and lien waiver requirements
Commercial subcontractMonthly pay applications, often with retainageBilling cutoff dates and prompt pay laws
Time and materialsWeekly or biweekly invoices with hours and receiptsCustomer approval of hours before invoicing

Small contractors are often owed more money than they have in the bank. The work is done, the crew is paid, the supplier wants their money, and the customer is “getting to it.” Most of that waiting is avoidable. It comes from payment terms that were never agreed, invoices sent days late or missing information, and no routine for following up. This guide covers deposits and payment schedules (including the legal limits in some states), what to put on an invoice, how card and bank fees compare with worked numbers, and the follow-up steps that get you paid. It is general information; check your own state’s rules, and treat nothing here as legal or tax advice.

Set terms before the work, in writing

Most payment disputes are really expectation disputes. If the contract says when and how you get paid, the invoice is a reminder. If it does not, the invoice is the start of a negotiation.

What the payment section of your contract should say

The amount and timing of any deposit; each progress payment and the milestone or date that triggers it; how long the customer has to pay each invoice (for example within 7 or 15 days); accepted payment methods and whether you pass on card fees where allowed; how change orders are billed; and what happens when payment is late, such as a late charge or a right to stop work, as far as your state allows.

Choose milestones the customer can see

“Rough-in inspection passed” or “cabinets installed” is clear to everyone. “40 percent complete” invites an argument. For homeowners, visible milestones also feel fair, which makes them more likely to pay promptly.

Keep payments ahead of your costs, legally

The aim is that the money you have received roughly keeps pace with the money you have spent. Front-load too much and you may break state rules or lose the customer’s trust; back-load and you finance the job. Plan the schedule so the payment for each stage lands around when your biggest bills for that stage are due.

Deposits: how much and what the law allows

A deposit commits the customer, covers early material orders, and filters out people who were never serious. But deposits are one of the most regulated parts of residential contracting.

Check your state’s limit

In California, Business and Professions Code section 7159.5 caps the down payment on a home improvement contract at 1,000 dollars or 10 percent of the contract amount, whichever is less. The same section bars requesting or accepting payment, other than the down payment, that exceeds the value of work performed or materials delivered. On a 40,000 dollar kitchen there, the maximum down payment is 1,000 dollars, not 4,000. Other states have different rules, and some have none. Look up your state’s contractor licensing board guidance before you set a deposit policy.

Where no cap applies

Many contractors ask for enough to cover materials ordered before work starts, especially special-order items. Explain what the deposit pays for, and credit it clearly on the next invoice so the customer sees it applied.

Special orders

For custom cabinets, windows or other non-returnable items, many contractors ask the customer to approve the order in writing and, where allowed, pay for those items when ordered. If your state limits that, consider having the customer buy the items directly from the supplier.

What every contractor invoice should include

A complete invoice gets paid faster because it does not create questions. Each question is a delay.

  • Your business name, address, license number where your state requires it on documents, and contact details.
  • Customer name and job address.
  • Invoice number, invoice date and due date (a date, not just “Net 15”).
  • The milestone or period being billed, matching the contract wording.
  • Original contract amount, approved change orders, revised contract total.
  • Amount previously billed and paid, deposit applied, and the balance due on this invoice.
  • Retainage held, if any.
  • Payment methods, with a pay-online link and bank transfer details.
  • Your late payment terms as stated in the contract.
  • Photos of the completed stage, where helpful.

Show the running total

Homeowners get anxious when they cannot see where the job stands. A small summary block (contract, changes, paid to date, this invoice, remaining after this invoice) answers the question before they call.

Card versus bank payments: what they really cost

Online payments get you paid faster because the customer can pay from their phone the day the invoice arrives. But on construction-size invoices, card fees add up.

Published processing fees

Stripe’s pricing page lists 2.9 percent plus 30 cents for domestic card payments and 0.8 percent for ACH Direct Debit, capped at 5 dollars. Square’s help center lists 3.3 percent plus 30 cents for invoices paid by card on its Free plan and 2.9 percent plus 30 cents on Plus and Premium, with ACH bank transfers at 1 percent (1 dollar minimum), capped at 10 dollars on Plus and Premium. Jobber’s pricing page lists card payments at 2.9 percent plus 30 cents and bank payments at 1 percent. Rates change, so check your processor’s current page.

Worked numbers on an 8,000 dollar invoice

At 2.9 percent plus 30 cents, a card payment costs 232.30 dollars. At 3.3 percent plus 30 cents, it costs 264.30. By Stripe ACH Direct Debit, it costs 5 dollars because of the cap. By Square ACH on Plus, 1 percent would be 80 dollars, capped at 10. Across a year of 40 such invoices, the difference between all-card and all-bank payment can be more than 9,000 dollars.

  • Card at 2.9% + $0.30: $232.30
  • Card at 3.3% + $0.30: $264.30
  • ACH at 0.8% capped at $5: $5.00
  • ACH at 1% capped at $10: $10.00

Steering customers without annoying them

Offer both, and make bank payment the default for large invoices. Some contractors add a card surcharge or offer a small discount for bank payment; surcharging rules vary by state and by card network, so check before you do it. Many contractors simply accept card for smaller invoices and absorb the fee as a cost of faster payment.

Getting paid faster: a routine that works

Collections are mostly about consistency. A routine that runs whether or not you are busy on site beats sporadic, awkward phone calls.

Invoice the same day

When a milestone is reached, invoice that day, ideally from the job site after the walk-through. If you batch invoices for Friday, you have just added up to a week to every payment.

Remind on a schedule

A friendly reminder two days before the due date, a note on the due date, then reminders at 7 and 14 days late. At 7 days late, call. Most late payers are disorganized, not unwilling, and a call fixes it. Many invoicing tools automate the written reminders.

Know your leverage and your deadlines

State prompt pay and lien laws give contractors real protection, but only if you act within the deadlines. In California private works, for example, Civil Code section 8800 requires an owner to pay a progress payment within 30 days after a written demand under the contract, with a 2 percent per month penalty on amounts wrongfully withheld. Texas Property Code section 28.002 generally gives owners 35 days after receiving a payment request. Mechanics lien rights often require preliminary notices early in the job and filing within set periods after completion. Learn your state’s deadlines before you need them, and talk to an attorney before filing a lien.

Track what you are owed

Run an accounts receivable aging report every week: invoices current, 1 to 30 days late, 31 to 60, and over 60. Anything over 30 days gets a phone call from the owner, not the office. Watch the total too. If what customers owe you is climbing faster than your sales, your terms or your follow-up need work.

A simple cash forecast helps: list expected payments by week from your billing schedule, and expected bills and payroll by week. You will see a tight week coming a month early, which is when you can still do something about it.

Common invoicing mistakes

Most late payments trace back to one of these.

  • No payment schedule in the contract.
  • Deposits above what your state allows.
  • Invoicing days or weeks after the milestone.
  • “Net 30” with no actual due date on the invoice.
  • Missing change orders or credits, so the customer disputes the total.
  • Only one way to pay.
  • Taking large payments by card without thinking about the fee.
  • No reminder routine, and nobody calls until it is 60 days late.
  • Missing lien notice deadlines, which removes your strongest leverage.

If you would rather not do this by hand

If you’d rather not run invoices and reminders by hand, most invoicing and field service apps send invoices with pay links and automatic reminders. If none fits your billing schedule, an AI app builder such as Floot can build a web app from your description with customer invoices, scheduled reminder emails and card checkout through Floot Payments, paid out via Stripe.

Frequently Asked Questions

What are standard payment terms for contractors?

On residential remodels, a deposit followed by payments at visible milestones, each due within a short period such as 7 to 15 days. Commercial work usually uses monthly pay applications with retainage. Put the terms in the signed contract.

How much deposit can a contractor ask for?

It depends on the state. California caps home improvement down payments at 1,000 dollars or 10 percent of the contract, whichever is less. Many states have no specific cap. Check your licensing board’s rules.

Should I accept credit cards?

Accepting cards usually speeds up payment, but fees of around 2.9 to 3.3 percent plus 30 cents add up on large invoices. Many contractors take cards for smaller amounts and steer large payments to bank transfer, where fees are often capped at a few dollars.

Can I charge a late fee?

Usually only if your contract says so and the amount complies with your state’s law. Some states also set statutory penalties on owners who wrongfully withhold payment, such as California’s 2 percent per month on private works progress payments.

What should I do when a customer won’t pay?

Call first, then send a written demand that cites the contract. Check your lien deadlines immediately, because they keep running while you negotiate. For significant amounts, talk to a construction attorney about lien, bond or small claims options.

Should I invoice change orders separately?

Either works if the change order says when it will be billed. Many contractors add approved change orders to the next milestone invoice and list them clearly, so the running contract total is always visible.

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