Getting paid: contracts, deposits, and lien rights

General information, not legal advice. Contract, deposit, cancellation and lien rules differ by state, by project type and by whether the customer is a homeowner or a business. Where this guide cites California it is as one example; check your own state's licensing board and a construction attorney before you rely on any of it.

Put the deal in writing

A written contract does two jobs: it tells the customer what they are buying, and it lets you prove it later. Many states require a written contract for home improvement work above a small dollar amount, and some prescribe wording, type size and notices that must appear in it. California, for example, requires a written contract for home improvement projects over $500 in labor and materials, and its licensing board publishes a sample.

A useful contract for a one-person shop generally includes:

your legal business name, licence number and contact details, and the customer's name and the job address
a plain description of the scope, including what is not included
the price, and how and when you are paid
a start and estimated finish, with a note on what delays the schedule (weather, material lead times, hidden conditions)
how change orders work: any change in scope is priced and signed before you do it
warranty terms, and the state notices your law requires

Change orders are where solo shops lose the most money. The customer says "while you are here," you say yes, and the extra work never gets billed. A one-page change order form, signed on your phone before the work starts, fixes that. Our pricing guide covers how to price the add-ons.

Deposits and progress payments

Deposits are not unlimited in many states. California, as one example, caps a home improvement down payment at the lesser of $1,000 or 10 percent of the contract price for most contractors, and says later payments may not exceed the value of the work done and materials delivered. Other states set different limits or none at all. Look up your licensing board's rules, and write your payment schedule to follow them.

Even where you are free to set terms, tie each payment to a milestone you can point to: materials ordered, rough-in complete, final inspection passed. Smaller, more frequent draws keep your exposure small. See our cash flow guide.

Right to cancel

Two different cancellation rules can apply:

The FTC Cooling-Off Rule requires sellers to give a three-business-day right to cancel for certain sales made at the buyer's home (generally $25 or more) or at other temporary locations (generally $130 or more). It has exceptions, such as emergency repairs the buyer requests; read the FTC's page for the current text.
State home-improvement laws often add their own cancellation period and required notice. California's is three business days, five if the buyer is 65 or older.

If a notice is required and you skip it, the customer may be able to cancel well after you have bought materials. Use the notice form your state prescribes and have it signed and dated.

Getting paid by card

Accepting cards usually gets you paid faster and reduces collections risk, but the processor takes a fee on each transaction. Rates and terms differ by processor and card type, so compare a few written quotes. Passing the fee on to the customer as a surcharge is limited by card-network rules and by some state laws, and the details change. Ask your processor and check your state attorney general's guidance before adding a line to an invoice.

Mechanic's liens and preliminary notices

A mechanic's lien lets a contractor, subcontractor or supplier who is unpaid for work on a property claim a legal interest in it. The rules are strict, vary by state and have short deadlines. Two points hold in most places:

Your role matters. In California, for instance, subcontractors and suppliers must serve a preliminary notice to preserve lien rights, and a late notice limits the claim to work done within a short window before it. A direct contractor does not need one. If you are a solo operator working for a general contractor, you are the subcontractor, so check your state's rule before the first day on site. See our guide to working as a sub.
Deadlines are measured from specific events such as the last day you worked or the recording of a notice of completion, and they can be as short as a few weeks. Put them on your calendar when you start the job.

Never assume a lien is impossible because the customer is "good for it." Sending the notice is what keeps the option alive. Also be careful about signing a lien waiver for money you have not yet received; a conditional waiver that takes effect only when payment clears is commonly used for this. Ask an attorney in your state to review the forms once.

A one-page checklist

Signed contract with scope, price, payment schedule and required notices.
Deposit within your state's limit.
Signed change orders for every scope change.
Preliminary notice sent, if your role requires it.
Invoice at each milestone, with the due date.
Lien and notice deadlines on your calendar.