How to Set a Payment Schedule and Invoice a Remodeling Job

The invoice does not set the contract price or change the scope. It bills an amount that has become due under the signed agreement. The payment schedule itself is written into the proposal; see How to Write a Construction Proposal.

Michael C. Stone, a builder and remodeler with more than six decades in the industry and the author of Profitable Sales, Estimating Construction Profitably and Markup & Profit: A Contractor's Guide, Revisited, the books this guide draws on, puts the principle plainly: a contractor is in construction, not lending. In Markup & Profit, chapter 7, he builds the payment schedule around the contractor's cash flow and makes progress payments due at the start of each work segment. He treats the signed schedule itself as notice of when each payment is due. The invoice is the record of it.

Every invoice needs the same core facts.

The language below is a drafting example, not legal advice. Have your contract and payment terms reviewed in your state.

The schedule

Paid at the start

A payment schedule in Clamp: the proposal's five payments, then one stage payment set to be due when its stage starts. Demo lead; the figures are the worked example in step 4.

The contract names the stage, never a date. If the start moves, the payment moves with it, so a late start never makes the customer late.

Start from cash flow, not a percentage. Stone's rule in Markup & Profit, chapter 7, is that the customer's money finances the customer's job: several progress payments, each due at the start of a segment, sized to what that segment needs. This example is the published 5×8 bathroom: $11,799 in direct cost, at the Established profile's 1.50x markup, a contract of $17,699.

The deposit covers the cash the job needs before the first stage payment. The bathroom carries $4,750 in allowances: tub, toilet, sink, faucet, shower valve and trim, tile, paint, vanity, countertop, mirror, light fixtures, accessories and exhaust fan. For this illustration, assume all of them have to be bought before the first stage payment arrives, so the deposit is $4,750, 27% of the contract. The share is high because the selections are a large part of a small bathroom's cost. On a real job, use what you actually have to pay or commit before the first stage payment, which may be less than every allowance, or include permits, engineering or subcontractor deposits.

Each stage bills what it is worth, less what the deposit already paid. A stage is worth its direct cost at 1.50x. Each selection is assigned to the stage that installs it, and its cost comes off that stage, so the same dollars are not collected twice. The deposit advances the selections' direct cost, not their selling price; the markup on them is collected in the stage payments. The estimate's trades fall into four groups; the last two, carpentry, vanity and fixtures ($3,170) and cleanup ($85), are billed as one stage, with $354 held back as the final payment.

Cost is the stage's direct cost from the estimate, and Value is that cost at 1.50x. The deposit is due at signing and the final payment at completion; the stages are due when they start. Each Amount is the Value less the selections the deposit already paid for in that stage: the tub, plumbing fixtures, light fixtures and fan ($2,250), the tile and paint ($701), and the vanity, countertop, mirror and accessories ($1,799, plus the $354 held for the final payment). Each column is rounded to the dollar so it adds to its total.

The final payment is 2% of the contract. In Markup & Profit, chapter 7, Stone keeps it at about 2% or less, and in Profitable Sales, chapter 12, he says plainly that this is his method, not an industry standard. A small final payment means a slow last check costs you little.

Check your state before you copy this. Some states limit deposits and progress payments on home improvement work. In California, a deposit may not exceed $1,000 or 10% of the contract, whichever is less, and apart from the deposit a contractor may not ask for or accept more than the value of the work performed or materials delivered (Business and Professions Code section 7159.5). For a home improvement contract covered by that section, billing a whole stage because it is about to start does not fit the rule. Build the schedule around work performed and materials delivered, keep the deposit within the cap, and have the schedule reviewed where you work.

This is the rule that protects you: build the schedule so you are not expected to fund the customer's stage from company cash.

Completion billing: you incur the stage's costs, the work is done, then the payment becomes due.

Start billing: the stage is ready to begin, the payment becomes due, then you incur the stage's costs.

When a payment is missed, stop spending into the stage it was supposed to fund. Stone's practice is to deal with an overdue payment at once and shut the job down if the customer does not cure it under the contract. This guide's practice is a written notice first, then stopping work as the contract and your state's law allow.

That is a drafting example, not legal advice. Notice periods and stop-work rights vary by contract and state.

Write your choices into the contract, so the customer knows them before the first payment comes due.

The deposit invoice is drafted when the proposal is signed. Review it and send it. Before each stage, send the start notice: it makes the payment ready to invoice, due on the planned start. If the start moves, move it, and any open invoice for that payment moves its due date with it, so the customer is never late because the schedule slipped. For a done payment, you can invoice ahead: create the invoice now, due on the planned finish.

Signed change orders that are not yet billed go on the next invoice, or wherever the change order says. An invoice never changes the contract on its own; see How to Write and Price a Change Order. Credits apply to new invoices by default. Partial payments and refunds are recorded on the invoice, so the paid and credited amount and the balance due always reconcile. The final balance bills whatever remains on the contract. A wrong invoice is voided, never deleted, so the record stays whole.

Most objections are answered by the signed schedule itself.