Contractor payments in California: deposits and draws

Contractor payments in California follow two limits set in state law and enforced by the licensing board: a small, capped down payment, and progress payments that never get ahead of the work. On a home improvement job the deposit tops out at $1,000 or 10% of the contract price, whichever is less, and every payment after it has to match work already done or materials already delivered. How you take cards or bank payments should be built around those two limits, not the other way round.

This guide is for licensed contractors who sign home improvement contracts with homeowners in California: remodelers, roofers, pool builders, HVAC and plumbing shops, and solar installers, since the board counts residential solar as home improvement. We cover sizing the deposit, writing a schedule a homeowner can pay by card or ACH without you collecting early, and the habits that break the rules without anyone noticing. Facts were checked on October 15, 2026.

How much can a California contractor take as a down payment?

The lesser of $1,000 or 10% of the contract price, according to the Contractors State License Board. The percentage only matters on jobs under $10,000. Above that, $1,000 is the ceiling however large the contract gets.

There is one way around the cap: a blanket performance and payment bond on file with the board. CSLB's page on contracts and binding agreements says a contractor holding that bond may ask for the whole contract amount up front without a schedule of payments, and it describes those bonds as rare. Without one, assume the cap applies to every home improvement contract you write.

A thousand dollars won't cover permits and the first materials order on most remodels. That's by design. The homeowner's money follows the work, and your own working capital or credit line carries the job between payments. If your business needs more cash up front than that, fix the financing; don't rename the extra money a "materials fee" or "design fee" and hope it falls outside the rule. Ask your attorney before you try any label like that.

Why is charging a card for unfinished work the trap?

Because modern payment tools make it easy to collect early without noticing. CSLB's 2022 industry bulletin reminds contractors that payments after the down payment must not exceed the value of the work performed or the materials delivered, and that violating the down payment and progress payment rules in Business and Professions Code 7159.5 is punishable as a misdemeanor.

Your card terminal and invoicing software know nothing about that statute. Three setups cross the line in ordinary use:

1. Saving the homeowner's card at signing and scheduling automatic charges on set dates. If the crew falls a week behind, the charge still runs on the 1st.
2. Sending the next invoice when a stage starts so the homeowner can "stay ahead." A payment link paid on Monday for drywall that's finished on Friday pays for work not yet completed.
3. Billing special-order materials when you place the order. The bulletin's test is materials delivered, and a supplier's order confirmation doesn't meet it.

The fix is the same each time: every charge is triggered by a finished stage or a signed delivery ticket, never by a date or by the customer asking to pay early. Switch off automatic recurring charges on remodel jobs. Keep recurring billing for work it actually suits, such as a monthly maintenance plan where each charge follows a visit you've already made.

Early charges also make disputes harder to win. A homeowner who paid by card for a stage that wasn't done has a simple complaint for the card issuer, and dispute windows are long: Mastercard's chargeback guide allows some service disputes to be raised up to 120 calendar days after the services ceased, with an outer limit of 540 days. Our chargeback management tools help you respond, but a schedule that bills only finished work stops most of these before they start.

How do you build a payment schedule that tracks the work?

Tie each payment to a stage you can prove, and give each stage a dollar value that matches the work inside it. Per the CSLB bulletin, the schedule has to say what work or materials each payment covers, and the contract must carry a bold warning that collecting for work not yet completed, or for materials not yet delivered, is against the law.

Take a made-up $48,000 kitchen remodel for a homeowner in Sacramento. Every figure below is invented to show the structure:

The six payments add up to $48,000. Look at payment 2: it pays for materials, so it waits until the cabinets are physically at the house. If the cabinet shop ships three weeks late, the payment moves three weeks too. That delay is the price of staying inside the rule, and it's worth building into your cash planning from day one.

Two habits keep a schedule defensible. Value each stage honestly, because a stage priced well above the work in it is just another way of collecting ahead. And when a change order adds work, give it its own line and amount, signed before the extra work begins, as CSLB's contract guidance tells homeowners to expect.

On long jobs billed by percentage of completion, our progress billing guide explains schedules of values and retainage in detail.

Which payment method fits each stage: card, ACH or check?

Pick by the size of the payment and where you'll be when it comes due. California's rules care about timing, not method, so a card, an ACH debit and a check are all fine as long as each one follows finished work. What changes with the method is your cost and your exposure to disputes.

The card-present gap adds up on big payments. Visa's April 18, 2026 interchange schedule prices a Visa Signature consumer credit card at 1.65% plus $0.10 when it's tapped or inserted, and 2.05% plus $0.10 when it's typed into a web page. On the $10,000 final payment in the example, that's $165.10 in person against $205.10 by payment link, a $40 difference before any processor markup. Payment links still make sense mid-job, because the homeowner is often at work when the inspection passes.

For the larger stages, a bank payment usually costs less than a card, and Clearo says ACH payments usually fund the next business day. Our ACH payment processing is priced by quote, like the rest of a merchant's setup. You need the homeowner's authorization before you debit their account, and our ACH authorization form guide lists what it should say. Treat a standing authorization to debit "as payments come due" like a card on file: start each debit only after the stage it pays for is complete.

Our virtual terminal sends invoices and payment links and keeps card numbers off paper work orders, and our mobile payments setup covers tap to pay and card readers for the walkthrough. The wider field setup is in our guide to credit card processing for contractors.

What if a homeowner wants to pay ahead?

Say no, politely, and put the reason in writing. Some homeowners would rather pay half at signing to lock in a start date, or pay a whole invoice the day it arrives. The CSLB rules restrict what you collect, and none of the board guidance we cite carves out an exception because the homeowner offered. The bond exception above is the only one we found.

Payments sometimes arrive early anyway. A homeowner pays the full contract balance through a payment link meant for one stage, or a bank sends a larger ACH credit than you invoiced. When that happens, refund the amount above what the finished work justifies, the same way it was paid, and note the refund in the job file. Holding it "on account" until the next stage is still holding money for work not yet done.

You can prevent most of this in the setup. Where your invoicing tool allows it, set each payment link to a fixed amount that the homeowner can't edit, send one link per stage, and expire links you no longer need. A made-up $9,000 rough-in invoice that can only be paid as $9,000 is far easier to defend than an open "pay any amount" page.

Can you pass card fees on to California homeowners?

Sometimes, carefully. California's surcharge statute was never repealed, and merchants rely on a court ruling and the Attorney General's enforcement position, which our California page sets out. The networks add their own limits: Visa holds a credit card surcharge to the lower of your merchant discount rate and 3% (Visa), Mastercard to the lower of your average effective merchant discount rate and 4% (Mastercard), and neither lets you surcharge a debit or prepaid card.

On a home improvement job, a surcharge belongs in the contract's payment terms and on every invoice, not just on the payment page where the homeowner first sees it. If you decide to add one, our credit card surcharging program handles the disclosure and setup. On a $1,000 deposit and mid-size stages, many contractors find the fee isn't worth the friction and steer the big stages to ACH instead.

What payment mistakes trip up California contractors?

Most come from treating a payment tool's convenience as permission. These are the ones we'd check for first:

• Asking for "10% down" on a $40,000 job. Ten percent is $4,000, and the cap is $1,000.
• A second "materials deposit" a week after signing, before anything has arrived.
• Card or ACH charges scheduled by date rather than by finished stage.
• A contract you drafted yourself that leaves out the bold down payment and progress payment notices.
• Change orders priced and charged after the work, with no signature on file.
• Invoices that say "progress payment 3" without naming the work, which leaves you nothing to show a card issuer later.

When the schedule, the invoice and the receipt all name the same stage, you can answer a homeowner, a dispute or a board inquiry with one folder.

Next step

Send us a recent merchant statement for a free statement review, and we'll show you what your deposits, stage payments and final payments cost by method. If you're setting up payment links, ACH debits or card readers for your crews, contact us, and see our page on home services payment processing for how the pieces fit a contractor's week.