How do I set a draw schedule that keeps me from financing the customer?
Short answer
Draws should always run slightly ahead of your actual cost curve, never behind it. If you're ever more into a job than you've been paid, you're the bank.
The rule
At every point in the job, cash collected should be equal to or greater than cash spent plus a small cushion. The moment your out-of-pocket cost passes what you've collected, you are lending the homeowner money at zero percent interest, and that's not your business.
Most trouble happens in the middle third of a job, when demo and framing are done (cheap, fast) and finishes are just starting (expensive, slow). That's where owners get squeezed if the draw schedule was built around even calendar splits instead of cost.
Build it around cost, not calendar
Don't split a job into four equal 25% payments just because it's simple. Map your draws to the cost curve: material-heavy phases get paid closer to when the material has to be ordered, not after it's installed.
State rules on deposit caps vary a lot, so check your state's rules before you set the first draw. Some states cap deposits at a flat dollar amount or a percentage regardless of job size.
Draw schedule against cost curve, $60,000 kitchen remodel
| Deposit at signingCovers design, permits, initial material orders | $9,000 (15%) |
|---|---|
| Draw 1: demo + rough-in completeCumulative collected 40%, cumulative cost ~30% | $15,000 (25%) |
| Draw 2: cabinets delivered, drywall doneCumulative collected 75%, cumulative cost ~65% | $21,000 (35%) |
| Draw 3: countertops + finishes installedCumulative collected 95%, cumulative cost ~90% | $12,000 (20%) |
| Final on punch list completion | $3,000 (5%) |
The math: Set each draw so cumulative collected stays 5 to 10 points ahead of cumulative job cost, the whole way through.
Draw schedule paragraph for the contract
Payment Schedule Deposit of $__________ (___%) due upon signing to secure scheduling and order materials. Draw 1 of $__________ (___%) due upon completion of demolition and rough-in. Draw 2 of $__________ (___%) due upon delivery of cabinets/major materials and completion of drywall. Draw 3 of $__________ (___%) due upon completion of finish work and installation. Final payment of $__________ (___%) due upon completion of the punch list, not to exceed 10 business days from substantial completion. Work will pause if a draw is not received within 5 business days of the milestone being reached.
Where owners get this wrong
- Splitting a job into even payments regardless of where the cost actually falls.
- Taking a small deposit and a giant final payment, which finances the whole job on your dime.
- Not building in a pause clause when a draw is late.
Worth knowing: Deposit and draw limits are set at the state level and sometimes the city level. Check your state's contractor licensing rules before you finalize a schedule, especially the deposit amount.
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