This is article 6 in the series of how to find a good service provider. To catch up on previous articles, you can go to https://www.lofthomeservices.com/blogs/ to find the previous articles about looking for red flags and doing your research.
In this article, we will discuss service provider deposits and upfront payments.
There are certain questions that come up often when the word “deposit” appears. “My service provider asked me for a deposit to begin my project, is that normal? “How much of a deposit is considered normal?” ” Why do they need a deposit from me, they’re already hired?” “Do I need to or should I pay this?”
Firstly, if a service provider has passed the sniff test of all the steps I have outlined in previous articles, chances are, you are fairly confident at this point with your choice of a service provider. They are likely someone you can confidently say does good work, is fair and honest, and has their ducks in a row for both legal compliance and for protecting your home.
This is really important when giving someone your hard earned money and is probably the most important factor. When you ask yourself “Do I trust this person/service” and can confidently say “yes I do”.
Let’s answer these questions one at a time:
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Is it normal for a service provider to ask for a deposit? Here at Loft Home Services, we define a “Larger” project as any project with a final bill over $1000.00. In this case we ask for a deposit. The project could have custom order elements or items that are difficult and would include a restock fee to return them. Because of this, it is very standard to request a deposit.
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How much is normal for a deposit? I have seen as much 50% from reputable services I have worked with but 30% is standard unless there are custom order materials that equal more than the 30% (note that according to the home improvement consumer protection act, a contractor isn’t allowed to take more than 33% plus special order materials as a deposit for a project).
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Is it safe to pay the deposit? If the service provider has checked off all the boxes outlined in previous articles, then you have done your homework and it is likely safe. I would recommend getting a receipt to have everything in black and white to reference. You always want to keep records for yourself.
I have heard people say that “no reputable business should ask for a deposit and if they do it’s a huge red flag.” Here’s a list of a few reasons why a service provider would ask for a deposit (certainly, as it is sometimes best practice as a reputable business to do so. :))
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For the same reason you need assurance, they may also. Upfront payment is a great BS reader. It will detect how honest and serious someone is about having work done. Unfortunately, just as there are some dishonest service providers, there are also some dishonest people who ask for services. This gives an extra layer of security to the service provider, as well as works as a meter to how serious the person asking for service is.
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It is generally good business practice not to have cash flow tied up in a project that isn’t paid for. Deposits and payment schedules based on completion of milestones are fairly standard and shouldn’t jump out to you as a red flag in its own right for this reason. Note that when a payment is scheduled for a milestone, they should be based on the completion of the milestone, not the time elapsed. I have seen people get in trouble with service providers having a hard time staying honest when time delays in a project have caused them to get paid for the vast majority of the project when payment schedules where based on amount of time elapsed. Payment schedules are usually seen on larger projects versus smaller ones.
I hope this article has helped you recognize some of the reasons a service provider would require a deposit. I also hope it has prepared you for the types of deposits they may ask for. Go with your gut and keep all this info and the info from previous articles in your back pocket, and you will surely make the right decision when hiring a service provider.