How to Pay a Contractor Safely: A Homeowner’s Guide

Start with a written contract, not a handshake

Before paying, get a signed contract identifying the contractor, job address, detailed scope, materials, price, estimated start and completion dates, and payment schedule. Include who handles permits, cleanup, changes, and final sign-off. Ask for clarification before signing anything blank or unclear.

Verify licensing requirements with your state or local authority, check the contractor’s status where licensing applies, and ask for proof of insurance. The FTC recommends checking credentials and getting a written contract; contract requirements differ by state. 1

Keep the deposit lawful—and never pay everything upfront

A deposit may help a contractor reserve time or prepare for your project, but there is no single deposit percentage that works legally everywhere. Ask what the deposit covers and check your state licensing board or attorney general before agreeing. The FTC advises limiting the down payment and never paying the full project price upfront. 1

For a state-specific example, California CSLB guidance generally limits home-improvement down payments to $1,000 or 10% of the contract price, whichever is less. It identifies an exception for contractors with a qualifying blanket performance and payment bond on file. Do not treat this California rule as a nationwide limit or assume that special-order materials automatically justify a larger deposit. 2

If the requested deposit feels out of proportion to the job, ask for an explanation and compare other written bids. A discount is not a good reason to hand over the entire contract price before work begins.

Tie each payment to a clear milestone

Use observable work stages rather than dates alone. Depending on the project, a milestone might be completion of demolition and debris removal, completion of an installation stage, or completion of agreed inspections. Define the evidence you will review and the amount due for each stage.

Have the contractor put the actual dollar amounts in the contract. Confirm that the deposit, progress payments, and final balance add up to the total. Keep payments from getting ahead of completed work; CSLB recommends detailing project phases and payment schedules in the contract. 2

Before authorizing a payment, compare the invoice with the agreed milestone and inspect the work or arrange a qualified review. Put added work, price changes, and schedule changes into a signed change order before the extra work starts. Do not rely on a text saying only “go ahead” without a defined scope and price.

Choose a payment method with a usable record

Pay the business named in your agreement using an agreed method that produces a clear record, such as a check, card, or business payment portal. Include the invoice number or job address and save the receipt. A payment record helps document what happened; it does not guarantee satisfactory work or a refund.

For electronic payments, confirm the recipient and account details through a phone number you already know, especially if an email announces new banking instructions. Ask about processing fees before paying and do not assume card, bank-transfer, and payment-app transactions have identical dispute options.

The FTC flags cash-only demands and requests for full payment upfront as warning signs. Avoid handing over unrecorded cash; if you have already paid cash, request a dated receipt showing the business name, amount, purpose, and remaining balance. 1

Understand lien waivers before progress and final payments

Paying your general contractor does not necessarily mean subcontractors and suppliers have been paid. California CSLB warns that getting a release from the contractor alone does not guarantee other potential lien claimants were paid. Ask who is working on the project, keep notices you receive, and check your state’s lien rules. 3

A lien waiver or release addresses a claimant’s lien rights for the payment described in that document. Forms and effects depend on state law. In California, conditional releases become effective when the claimant is actually paid; unconditional forms state that payment has been received. Use the appropriate state form and review the amount, covered work, dates, and exceptions. 3

Arrange appropriate releases from relevant subcontractors and suppliers as well as the contractor. CSLB recommends tracking project participants and payment paperwork, and describes joint checks as an option. Ask a construction attorney or your lender how to coordinate payment and releases if the job is complex. 4

Pause for payment red flags

Slow down if someone pressures you to decide immediately, refuses a written scope, demands everything upfront, insists on cash only, or will not explain a payment request. The FTC identifies immediate-decision pressure, full-upfront demands, and cash-only payment as home-improvement scam warning signs. 1

For a disputed invoice, describe the issue in writing, attach photos or contract references, and request a written resolution. Do not assume you can cancel the contract or withhold any amount without consequences; get state-specific advice before taking those steps.

Close out the job with the paperwork

Before the agreed final payment, walk through the project together, list unfinished or incorrect items, and agree in writing on how they will be handled. Collect applicable inspection records, warranties, product information, receipts, and appropriate lien releases. The FTC recommends avoiding final payment until the work is completed and satisfactory. 1

Keep the contract, change orders, invoices, payment confirmations, photos, and messages in one job folder. Homeowner Henry matches homeowners with local home-improvement pros. Henry Pay is coming soon, with plans to hold the job’s money and release it on an agreed schedule.

Common questions

Sources

• FTC: How To Avoid a Home Improvement Scam
• California CSLB: What You Should Know Before Hiring a Contractor
• California CSLB: Conditional and Unconditional Waiver and Release Forms
• California CSLB: How to Prevent a Mechanics Lien

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