Contractor Deposit Limits by State: What Each Cap Does to the Draw Schedule

California and Nevada: the deposit is small, and every later payment follows the work

The two strictest rules pair a small deposit with a second limit that matters more over the life of the job: no payment ahead of the work. California’s Contractors State License Board reminded contractors of both in an industry bulletin dated November 22, 2022. A home improvement contract must carry the heading “Down Payment,” the amount, and the boldface statement that the down payment may not exceed $1,000 or 10 percent of the contract price, whichever is less. If the contract has a payment schedule, it must be headed “Schedule of Progress Payments” and must describe each phase of work with the amount of each payment.

The same bulletin quotes the required boldface warning that it is against the law to collect payment for work not yet completed or materials not yet delivered, and notes that a violation of § 7159.5’s payment rules is punishable as a misdemeanor. Section 7159.5(a)(8) exempts a contractor who furnishes a performance and payment bond, a lien and completion bond, or an approved equivalent, from the down payment and progress payment limits. Whether a bond makes sense is a question for the firm’s attorney and surety, not for this guide.

The practical effect is that in these two states the deposit cannot fund the job, so the schedule of progress payments has to. Each phase needs a description precise enough that the homeowner and the office both know when it is done, and the invoice for it has to go out when it is done, not at the end of the month.

Massachusetts and Maryland: one-third, and what the special-order clause allows

Maryland’s rule is the simpler of the two: nothing before the contract is signed, and no more than one-third at or before signing. Massachusetts sets the deposit at the greater of one-third of the price or the actual cost of special-order or custom-made materials or equipment that must be ordered in advance. On a kitchen where the cabinets are custom and long-lead, that clause is written for exactly the order the firm has to place first.

The same Massachusetts section requires a written time schedule of payments with the amount of each payment stated in dollars, and it says that no final payment shall be demanded until the contract is completed to the satisfaction of the parties. Both belong in the contract template, written once, rather than in a conversation at the kitchen table.

Florida and Texas: no cap, but the money comes with duties

Florida sets no ceiling, yet § 489.126 puts a clock on a large deposit. Take more than 10 percent up front on residential work and the permit application is due within 30 days of the payment, with the work starting within 90 days of permit issue, unless there is just cause or a written agreement to longer periods. Subsection (3) separately addresses a contractor holding money in excess of the value of work performed who fails to perform any work for 90 days or for a period the contract specifies. For a firm with a long backlog, a large deposit taken months before the crew is free can collide with those dates, so the start date the contract promises should be one the schedule can keep.

Texas also has no cap, but on a residential homestead contract above $5,000 the trust funds go into an account the bank statement calls a “construction account.” That is a banking task with a deadline: the account exists before the first deposit arrives, and the deposit lands there, not in operating. What counts as trust funds and how they may be spent are defined elsewhere in Chapter 162 and are questions for the firm’s attorney and CPA.

What a deposit cap does to the draw schedule and the cash gap

A deposit cap moves the cost of starting a job onto the firm. Materials are ordered, subs are scheduled and payroll runs for the first phase before the first progress payment arrives. The tighter the cap, the more the firm’s own cash carries the job between the start and the first milestone, and the more each day between a finished milestone and its invoice costs.

Illustrative example: a $60,000 bathroom-and-kitchen job in a state with a $1,000 deposit ceiling. If demolition, rough plumbing and rough electrical cost the firm $14,000 before the rough-in inspection, the firm is carrying about $13,000 of the job on its own money until that phase is invoiced and paid. If the invoice waits for a month-end billing run, the gap lasts until the homeowner pays an invoice that went out up to four weeks late. Under a one-third rule the same job could start with $20,000 in hand. The numbers are hypothetical; the firm’s own job costs replace them.

A payment schedule that respects both the cap and the cash looks like this:

• A deposit line at or below the state’s ceiling, stated in dollars, with the statute’s required wording where the state requires it.
• Phases defined by events anyone can verify: rough-in inspection passed, drywall hung, cabinets delivered and set, final inspection passed.
• Each progress payment no larger than the value of the work in that phase, where the state limits payments to work performed or materials delivered.
• Where the state allows it, a separate line for special-order materials, with the supplier quote attached and the order date stated.
• A rule in the office: the draw invoice goes out the day the phase is verified, by a named person, with a photo or the inspection card attached.

The Cash Gap Calculator turns the firm’s own numbers — job size, cost per phase, days to invoice, days to pay — into the cash the gap ties up, without anyone guessing at an average.

Check the last ten jobs against the rule and the schedule

The table above says what is allowed. The firm’s records say what happened. Pull the last ten signed residential contracts and, for each one, write down:

• The deposit taken, the state’s ceiling for that contract, and whether the contract carries the wording the state requires.
• Whether the payment schedule names phases by verifiable events, or by dates and percentages.
• For each phase, the date it was verified and the date the invoice went out; the difference is the firm’s own delay.
• In Florida, for deposits over 10 percent, the payment date, the permit application date and the start date. In Texas, whether homestead jobs over $5,000 ran through a construction account.
• The firm’s cash out on the job before the first progress payment arrived.

Ten rows are enough to see whether the deposit rule is being followed, whether the schedule is written so it can be billed on time, and how many days of every job the firm finances by waiting to send the invoice.

When to call an attorney, and when not to buy anything

Call a construction attorney before changing contract templates, before relying on any exception such as a bond, and whenever a homeowner disputes a deposit or a payment. The statutes above set penalties and remedies that this guide does not interpret, and Lumina gives no legal advice.

Do not buy anything if the firm runs one or two jobs at a time, the contract template already matches the state rule, and the owner invoices each phase the day it is done. A spreadsheet of the ten-job check above is enough. If the schedule exists on paper but invoices trail the work, the Revenue Review is two weeks of read-only access to contracts, draw invoices, job costs and the books, ending in a written report with a monthly dollar figure for each leak the records support — draws sent late, extras never billed, allowance overages held for the final invoice — and a 90-day plan. Implementation is scoped and priced separately. The first step is a free 20-minute call, and if the records point to a small leak, the call says so.