Why more contractors are requiring deposits upfront and what’s reasonable

Across home renovations and commercial builds, you are far more likely to be asked for money before work begins than you were a few years ago. Contractors are wrestling with volatile material prices, slower payments from larger clients, and tighter lending standards, so deposits have become a key way to keep projects moving. The challenge for you is separating fair, businesslike requests from red flags that put your cash at risk.

Understanding why deposits are rising, what counts as a reasonable amount, and how to structure payments gives you leverage at the negotiating table. With the right questions and a clear contract, you can protect your budget while still giving a reputable contractor the upfront funding they genuinely need to deliver.

1. Why deposits are becoming the norm, not the exception

You are seeing more contractors ask for deposits because their own costs are less predictable and their access to working capital is tighter. Industry outlooks describe how Uncertainty in construction has become a defining feature, with tariff risks, labor shortages, and insurance pressures all pushing firms to shift risk away from their balance sheets and onto project cash flow. When a contractor asks you to share some of that risk through a deposit, they are often trying to avoid taking on short term debt just to buy your materials and schedule your crew.

At the same time, subcontractors are being squeezed by slow payment cycles higher up the chain. Reporting on The Financial Squeeze Hitting Subcontractors notes that Waiting 60 to 90 days to get paid does not just slow things down, it can threaten a firm’s survival. When your electrician or framer is effectively financing a project for two or three months, a deposit from you becomes a lifeline that covers payroll and keeps them from walking away mid job.

2. How supply chain shocks and tariffs feed into upfront payments

Behind many deposit requests is a simple reality, your contractor cannot control what happens to material prices between the day you sign and the day they place orders. Analyses of Material Tariffs warn that the construction industry is headed into a period where the cost of steel, lumber, and specialized components can jump quickly, and managing that price volatility will be critical for subcontractors. If your builder locks in a fixed price with you but has to buy materials later at a higher rate, they may be forced to eat the difference unless they collect enough upfront to purchase early.

Global logistics are adding another layer of risk. Supply chain research notes that as multiple transport modes are engaged, metrics like on time transfer rate and transit time variability have become central to planning, and some firms are responding by holding more stock in selected key regions. When your contractor asks for a deposit to pre order windows or roofing, they may be trying to secure inventory before a shipping delay or tariff hike hits, which can ultimately protect your schedule as much as their margin.

3. The contractor’s side of the ledger: why deposits matter to their business

From the contractor’s perspective, a deposit is not just about trust, it is about cash flow. Guidance for tradespeople on requesting client deposits stresses that one critical aspect is timing, since asking at the right moment can reduce the immediate financial risk involved in mobilizing a crew and ordering materials. If you expect a contractor to front thousands of dollars in supplies and labor before seeing a cent, you are effectively asking them to act as your lender, something smaller firms simply cannot afford to do repeatedly.

There is also a psychological and scheduling benefit for them when you pay a portion in advance. Business advice on Every reason to ask for a customer deposit points out that prepayments not only protect the provider from cancellations, they also ensure cash is on hand to purchase necessary supplies. When you commit funds, you signal that you are serious about the project, which makes it easier for a contractor to reserve your dates, turn away other work, and dedicate their best crew to your job instead of chasing clients who might never sign.

4. What is “reasonable” for an upfront payment?

For you, the key question is not whether a deposit is justified but how large it should be. Consumer facing guidance on Paying the deposit notes that Most contractors require some money at the outset, but that initial amount should not represent the majority of the project cost. Instead, the first payment is typically framed as a good faith commitment that covers ordering materials and reserving time, while leaving enough leverage in your hands to ensure the work is actually completed.

What counts as reasonable also depends heavily on scope. Another section of the same guidance explains that a reasonable deposit depends on the project, including how much the contractor must spend on materials, permits, and specialized labor before any visible progress appears at your home. If your kitchen remodel requires custom cabinets and stone countertops that must be fabricated to order, a higher percentage upfront can be justified than for a simple paint job, as long as the payment schedule still leaves meaningful sums tied to milestones.

5. Legal guardrails: what the law says about deposits and retention

In some places, you do not have to guess what is reasonable because the law sets hard limits. In California, for example, consumer protection rules cap how much a residential contractor can collect before work begins, and guidance on hiring explains that While the law limits the initial payment, contractors can still structure later draws to cover materials, permits, and labor as the job progresses. If you are in a state with similar statutes, any contractor who pushes for more than the legal maximum is not just aggressive, they are asking you to participate in a violation.

Separate from deposits, retention rules are also shifting in ways that affect how much of your money stays in play until the end. In California, new rules summarized under Effective January explain that California SB 61 now Caps Retention at 5 percent on Private Construction Projects, a change California adopted to improve contractor cash flow during the project. A separate analysis of the same shift notes that if your firm is involved in private construction in California, the traditional 10 percent retainage practice is being replaced, which means you should expect contracts to evolve so that less of the total price is withheld until final completion.

6. Spotting red flags: when an upfront ask is too much

Even in a tough market, there is a clear line between a fair deposit and an excessive demand that exposes you to unnecessary risk. Consumer advocates warn that if a contractor ghosts you after you make the first payment, you may need to contact a Philade area attorney or similar specialist in your region, which is a reminder that once money leaves your account, recovering it can be slow and uncertain. Any contractor who insists on most of the project price upfront, refuses to provide a written contract, or pressures you to pay in cash only is asking you to shoulder nearly all the risk.

The rise of online marketplaces has created new ways for bad actors to demand money before delivering anything of value. Guidance on What to Do When Online Contractors Demand Excessive Upfront Payments urges you to Understand Industry Standards before you decide whether you are comfortable proceeding with your project, especially when you have never met the person in real life. If someone you found through a social platform or classified site wants a large wire transfer before even visiting your property, you should treat that as a major warning sign rather than a normal business practice.

7. How reputable contractors structure deposits and milestones

Reliable firms tend to use deposits as part of a transparent, staged payment plan rather than a one time grab. Remodeling specialists who walk homeowners through whether to pay 50 percent upfront explain that the best contractors are clear about What motivates them to request money early, and that openness is a hallmark of reliable remodeling contractors. You should expect to see a schedule that ties each payment to a specific milestone, such as demolition complete, rough inspections passed, or cabinets installed, so you can verify progress before releasing more funds.

In residential work, professionals are advised to treat deposits as the bridge between a signed proposal and an actual, billable renovation project. Guidance on Using Deposits in Residential Construction notes that a job only becomes an actual, billable renovation project once the deposit is paid, which is why contractors often will not order custom items or pull permits until that first check clears. For you, that means the deposit should be large enough to signal commitment and cover early costs, but not so large that you lose leverage if the contractor fails to show up or deliver quality work.

8. Negotiating a fair deal: questions to ask before you pay

When a contractor presents a deposit figure, you do not have to accept it as a take it or leave it number. Start by asking them to break down what the upfront money will cover, and compare that explanation to your understanding that the initial deposit is meant to cover materials and early commitments so both sides are already invested in the project. If the amount they want is far higher than the cost of items they need to order or the labor they must schedule in the first phase, you are on solid ground asking them to adjust the percentage or shift more of the total into later milestones.

You can also lean on the idea of benchmarks to keep negotiations grounded in reality rather than emotion. In other industries, Industry Standards Industry benchmarks serve as invaluable reference points that help businesses gauge whether their costs and practices are healthy, and you can apply the same logic by comparing multiple bids and deposit structures. If three licensed contractors in your area are comfortable starting with 20 to 30 percent and one insists on 60 percent in cash, that outlier is telling you something about their risk profile and your potential exposure.

9. When higher deposits can make sense, and how to protect yourself

There are situations where a larger deposit is not only reasonable but necessary, as long as you build in safeguards. In a construction boom, for example, lenders and suppliers may be unwilling to fund projects without fixed price contracts, and observers note that We are also seeing an increase in contractors seeking upfront payments and deposits to guarantee the supply of materials. If your project depends on scarce items like specialty glass or imported tile, agreeing to a higher initial payment can secure your place in line, provided the contract clearly states what will be ordered, when, and how you will be compensated if those items never arrive.

To protect yourself in these higher risk scenarios, combine a thoughtful deposit with documentation and oversight. Make sure the contract spells out that your payment will be held in a dedicated project account or used only for specified purchases, and insist on receipts or order confirmations for big ticket items. You can also stagger the remaining balance so that each draw reflects real progress, keeping in mind that It not only protects you to have money in reserve, it also ensures your contractor has cash on hand to purchase necessary supplies without cutting corners. When you approach deposits as a shared risk management tool rather than a one sided demand, you are far more likely to land on terms that feel fair to both sides and keep your project on track.

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*This article was developed with AI-powered tools and has been carefully reviewed by our editors.