In This Article
How you pay your contractor is one of the biggest factors in whether your project succeeds or fails. The wrong payment structure invites problems. The right one protects both you and your contractor.
This guide covers what Indianapolis homeowners need to know about contractor payment schedules.
The Golden Rule of Contractor Payments
Never pay more than the value of completed work.At any point during your project, your payments should roughly equal what's been done. If you've paid 50% and only 20% is complete, you're exposed.
This simple rule prevents most payment-related disasters.
Standard Payment Structures That Work
The Milestone Payment Structure
This is the safest approach for most home projects:
Typical breakdown:- 10-20% deposit at contract signing
- 25-30% when materials arrive on site
- 25-30% at project midpoint (defined milestone)
- Remaining balance at completion
- You always have leverage
- Contractor has incentive to complete each phase
- Risk is distributed throughout the project
For Small Projects (Under $5,000)
Simple two-payment structure often works:
- 30-50% deposit
- Balance at completion
- Small concrete work
- Basic landscaping
- Minor repairs
- Single-room painting
For Large Projects ($25,000+)
More milestones provide better protection:
Kitchen remodel example:- 10% at contract signing
- 15% when demo is complete
- 20% when rough-in passes inspection
- 20% when cabinets are installed
- 20% when countertops and appliances are in
- 15% at final completion and walkthrough
Payment Red Flags
Warning Signs at Contract Stage
Be concerned if contractor asks for:- 50% or more upfront
- Full payment before starting
- Cash only
- Payment directly to their personal account
- Custom materials that must be ordered
- Special equipment rental required
- Very small project where materials are most of the cost
Warning Signs During Project
Stop payments if:- Work quality is declining
- Progress has stalled without explanation
- Contractor is asking for more money than completed work justifies
- Materials you paid for haven't shown up
How to Handle the Deposit
What's Reasonable
| Project Size | Reasonable Deposit | |--------------|-------------------| | Under $5,000 | 30-50% | | $5,000-$15,000 | 20-30% | | $15,000-$50,000 | 10-20% | | Over $50,000 | 10% or less |
Protecting Your Deposit
Best practices:- Pay by check or credit card (paper trail)
- Get a receipt documenting what it's for
- Contract should specify what deposit covers
- Deposit should be credited against final payment
- Wire money to a contractor
- Pay large amounts in cash
- Pay deposit to an individual instead of business
Written Payment Terms
Your contract should clearly specify:
Payment Schedule
Include:- Exact amounts for each payment
- Specific milestones that trigger payment
- Who determines milestone completion
- Timeline for payments after milestone
What Triggers Each Payment
Vague: "Payment due at midpoint" Clear: "Second payment of $8,500 due when framing is complete and passes inspection, within 5 business days of inspection approval"Change Order Provisions
Include:- How additional work will be priced
- When change order payment is due
- Who approves changes and costs
- Maximum change allowed without new agreement
The Final Payment
Never Pay in Full Until:
- All work is complete to your satisfaction
- Punch list items are resolved
- Final inspections have passed
- Lien waivers are provided
The Punch List Process
1. Do a thorough walkthrough with contractor 2. Document everything that needs attention 3. Create written list both parties sign 4. Set deadline for completion 5. Hold final payment until complete
Lien Waivers
What they are: Documents from contractors and subcontractors confirming they've been paid and waiving lien rights. Why they matter: Without them, subcontractors can place liens on your property even if you paid the general contractor. When to get them: With final payment, require:- Lien waiver from general contractor
- Lien waivers from all subcontractors
- Lien waivers from material suppliers
Handling Payment Disputes
When You Shouldn't Pay
Legitimate reasons to withhold payment:- Work doesn't meet contract specifications
- Work failed inspection
- Required permits weren't obtained
- Materials are different from what was specified
- Photos of issues
- Written communication about problems
- Inspection reports
- Expert opinions if needed
When Contractor Asks for More Money
Legitimate reasons for cost increases:- Work you requested beyond original scope
- Hidden conditions discovered (documented)
- Material prices increased significantly (if contract allows)
- Vague "unexpected costs"
- Claiming they underbid the job
- Threatening to stop work without more money
Payment Methods: What to Use
Best Options
Credit card (if accepted):- Dispute rights if problems arise
- Paper trail
- Some consumer protection
- Clear paper trail
- Can stop payment if issues
- Evidence of what was paid
Acceptable
Digital payment (Zelle, Venmo):- Less protection than cards
- Document what payment is for
- Get confirmation receipt
Avoid
Cash:- No paper trail
- No recourse if problems
- Only for very small amounts if necessary
- No reversal possible
- Common in scams
- Never wire money to a contractor
FAQ
What if the contractor won't agree to milestone payments?A contractor who insists on large upfront payments or won't accept milestones is a red flag. Most legitimate contractors understand that milestone payments protect everyone.
Should I pay for materials separately?Sometimes contractors prefer this. If you do, pay suppliers directly rather than giving material money to the contractor. This ensures materials are actually purchased.
What if work is delayed—should I keep paying?Payment should follow completed work, not the calendar. If the schedule slips but work continues, payments should still follow milestones, not dates.
Protecting Your Payments
Structuring payments correctly is just one part of protecting yourself. You also need to verify your contractor is legitimate before you pay anything.
Vetted Crews helps Indianapolis homeowners verify contractors and structure projects for success. We review contracts, check credentials, and help ensure you're protected.
Call (317) 850-8396 before you sign your next contractor agreement.Your payment schedule is your leverage. Structure it wisely.