Payment issues with contractors rank near the top of homeowner contractor disputes. Homeowners have to trust the contractor enough to sign large checks, and contractors need the money to pay the workers and buy materials. Following a few simple rules will help reduce the friction and increase the chances of a successful project:
- Agree on a payment schedule ahead of time. In the contract or quote, or agreement, specify a payment schedule. The homeowner and the contractor should both sign off. Definitely have the payment schedule in writing.
- Pay on time after each milestone. Even if the contractor does not remind you, pay when each milestone is completed. This will add trust to the relationship.
- Never pay in full before the project starts. Horror stories abound about crooks posing as contractors and walking off with the payment. If the contractor insists on full payment up-front, its better to walk away.
- Space out payments according to milestones. For a large projects it may be passing certain inspections. For smaller project it may be in thirds or half up front and half upon completion. As a rule, the bigger the project is, the more payment milestones.
- Always document your payments and ask for detailed receipts. In case of a dispute down the road, documentation is on your side.
- Insist on pricing for change orders ahead of time. Some contractors make most of their profit in change orders. During a project, they may ask if you want this upgrade or this extra work without clearly specifying the price. You may think its free or inexpensive and then stuck with a large bill after the work is done. Make it clear to the contractor (3 times!), that any extras outside of the contract must be agreed upon if the contractor wants to get paid. Have it in writing.