ArcaMax

I’m a regular guest on the "Happenings" radio show broadcast on WLIP in Kenosha, Wisconsin. The show is streamed live on WLIP.com. This allows you to benefit from the tips and entertainment no matter where you live. Last week, the hosts, Frank, Kim and Reanna, asked me about the best way to pay contractors.

A lively discussion ensued, and I tried to shed light on what’s going on inside the heads of both homeowners and contractors. The center of the discussion was debunking why contractors think they deserve a deposit up front before they even show up to do work at your home.

I think it’s worth understanding what happens to you should your job go off the rails, your contractor is not returning calls, and/or the workmanship is shoddy. You may think about hiring an attorney to initiate legal action.

I’ve been an expert witness in building and remodeling lawsuits for almost 25 years. My last case had me crawling all over the roof of the Brazilian ambassador’s home on the island of Antigua. I can tell you from experience that the only guaranteed outcome in a lawsuit is that the attorneys and expert witnesses make lots of money.

Even if you win a lawsuit, you still have to collect the money. I can assure you that you’ll never ever get back all the money owed to you, plus the money you spent to get it. This is why you don’t want to get into a position where you have to sue a contractor. You need to always have enough money in your possession to finish the job should the contractor disappear or you fire him for a host of reasons.

Hiring and paying contractors is a very unique financial experience. I’m talking about large jobs that may take a week, a month or several months. Paying an electrician, plumber or HVAC tech to do a repair in a few hours is not the subject of this column. Those are straightforward transactions.

There’s only one instance, in my opinion, when money should be advanced prior to the start of work. A contractor will request a deposit for any custom-ordered materials that are non-returnable. Often, the supplier wants a 50% deposit. You can also choose to pay this money directly to the supplier in the event you don’t trust the contractor. If seeds of distrust are sprouting this early in the job, you’ve got serious problems ahead. This signals to me that you didn’t do a proper job of vetting the contractor.

Contractors don’t pay their employees or subcontractors in advance. Contractors don’t pay for their stock materials in advance unless they’re such a huge credit risk that no business will extend them credit. Most big box stores, lumberyards, etc., will extend credit to anyone who can fog a mirror and has reasonably good credit history. A contractor might not have to pay for materials on your job for over 30 days, depending on when he starts your job. Why would you ever give him money if this were the case?

Since the contractor isn’t paying anyone in advance, you have a strong argument to make that what’s good for the goose is good for the gander. Stand firm and do not advance money!

I shared on the radio show what I feel is the best way to pay a contractor. You should obtain in the bidding process a breakdown of all the costs on large jobs. I sell a fantastic spreadsheet that lists more than 100 items that should be accounted for. Go here to get it: http://go.askthebuilder.com/costestimator

You then structure the payment schedule to match the job progress points. Let’s talk about a three-day re-roofing project as an example. You can ask before you sign the contract how much work will be done by the end of each day. Let’s say it works out to one-third each day.

You then tell the roofer that you’ll fill out three checks before the job starts. Show them to him when he arrives on the first day. The three checks total the contract price. Present him with the first check at the end of day one if he completes all he said he would. If the contractor is so distrusting that you won’t pay him, he’s only gambling on one day’s labor and the materials. He has lots of leverage because, at this point, your home is not 100 percent waterproof. You and the contractor have equal footing on the trust bridge.

A true professional contractor has considerable working capital. Back when I was still building, and that was over three decades ago, I routinely had $100,000 in my business checking account. I could easily make payroll and pay material bills for weeks or a month. Many contractors don’t have this working capital, which is why they’re asking you to be their personal banker.

On my larger jobs that lasted three or four months, I always had in my contract that I was to get paid for all labor and material that was onsite at the end of each month. I gave my customers a breakdown for full transparency. I simply asked to get paid within five days. This allowed me to pay my material invoices by the 10th of the month. My suppliers offered me a 2% discount if I paid by the 10th day. That discount adds up when you buy hundreds of thousands of dollars worth of material a year!

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©2025 Tim Carter. Distributed by Tribune Content Agency, LLC.