There is effectively one golden rule when it comes to contractors/trades and payments:

Don’t prepay for anything to the extent you can avoid it!

To dig into that a little further…

This is just a schedule that sets out what payments you’ll make to the contractors / trades and when. 

It can form part of the contract you enter with the contractors so be sure to have discussed the payment schedule and come to a clear agreement in relation to it before signing a contract.

There’s no fixed approach.

If you can successfully follow the golden rule closely and your contractor agrees to it, you’d only pay all money due once all work is done, building control has issued its completion/final certificate and the contractors have satisfactorily dealt with any snagging. The trouble is, most won’t agree to that and you need to balance things in a way that works for both parties or you’ll potentially sour the relationship and the contractor will walk away.

Paying all money due after snagging is worth a shot, but usually there is some request or other in respect of an upfront deposit amount, payments during the works phase and a retention amount that the client withholds to incentivise the contractor to deal with all snagging, only paying that final amount when all snagging has been dealt with satisfactorily. 

The reality is that money is one of the big tensions between contractors and their clients. Contractors are understandably eager to get money that they’re owed into their bank account as soon as possible. Margins are thin in residential construction and maintaining good cash flow is critical, plus clients can sometimes avoid paying money when it’s actually fairly due. Clients should however be very eager not to hand over money until they’re certain that the work has been done properly and the money is actually due. 

You’ll have to have the discussion with whichever contractor you try to engage. Maybe they’re eager enough for the job and/or usually don’t get ahead of themselves concerning payments anyway and you’ll be able to adhere to the golden rule, at least fairly closely. However, you may for example be lucky enough to be engaging a contractor who’s very experienced and coveted in the area. That contractor would then be in a position to tilt things in their favour though. If they can get others to pay them sizeable deposits and/or periodic payments in advance of work being done and/or minimal or no snagging retention, then you may have to balance those demands against that contractor potentially just not working for you if you don’t agree to their terms. 

We’re part of a local community forum on social media. Someone asked recently (late 2023) how much others in the area had paid upfront as a deposit to a contractor for a loft conversion. The replies were surprisingly varied. Perhaps they found themselves on the short side with a contractor that was in high demand and took a very aggressive stance with payments but one person strongly put forward the view that 50% of the total due was standard and reasonable.

To be clear, it isn’t. Not even slightly. Such a massive deposit leaves you hugely exposed to obvious situations like rogue contractors just taking money and vanishing but also to unexpected scenarios like perfectly reputable and competent contractors ending up in a bad patch and going bankrupt. 

Your ideal is definitely £0.00. That said, many contractors are unlikely to agree to that and you might need to agree to some amount as a deposit but, if so, keep it minimal as the risk is usually very much greater in your court than in theirs. 

The contractors usually put forward two arguments for why they want a deposit:

The golden rule stipulates that, again, your ideal is definitely paying £0.00 until all work is done satisfactorily. Contractors are unlikely to accept this though, even if you manage to agree to no deposit. Particularly so if the contract is for a lot of money overall.

Decent contractors should have enough cashflow to cover all their costs for a period of time but it probably isn’t terribly reasonable to expect them to cover, say, £200,000 over a period of 4 months. Certainly, for smaller residential contractors, that just won’t be workable for them. 

It’s therefore common enough practice for payments to be made in stages. As you’ll see from our Overview for the Works phase, there are clear stages to the works phase.

You could agree to a proportionate payment at the end of each stage, upon evidence of satisfactory completion of that stage (bear in mind the amount of work and materials that go into each stage though — they’re not all equal). Alternatively, you could link payments to the different building control inspection stages. 

Some contractors will try to get you to pay periodic payments, whether weekly or otherwise. We’ve agreed to this before and while it was ultimately fine it wasn’t really ideal for a few reasons. Works often take longer than expected or get delayed. That then means that you either end up paying for works that haven’t yet been done or that you need to diverge from the agreed periodic payment schedule (which might technically breach the contract you should have with the contractor). Diverging from the schedule then involves having to have regular payments discussions, with the contractor pushing for payments and you pushing back to withhold payments until you’re sure they’ve actually satisfactorily done works up to that overall total value as of the relevant date (i.e. it’s not 6 weeks worth of work that’s relevant but rather what the cost of that work and what the cost of materials for that work over the relevant period have been). Additionally, the contractor is incentivised not to properly inform you about the progress of the works. Instead it incentivises the contractor to just keep letting you make payments even if they know they have fallen behind.  

If you do agree to a deposit and/or payments during the works phase, you should always seek to withhold at least 5% minimum of the total amount payable with that 5% being payable only once all snagging has been dealt with satisfactorily.

If you can, aim to set a snagging retention percentage as high as possible.

Depending on the overall costs of your works and the extensiveness of snagging, your 5% might not actually cover all snagging costs in the event that you need to get someone else in to handle those.

Also, if the 5% isn’t actually a particularly high monetary amount, the contractor might prioritise getting new work done elsewhere over finishing up your job for that smaller amount.

If you’ve signed a contract, and you absolutely should have, the contractor will be bound to the terms of that contract, including with respect to snagging, but the reality is that monetary incentivisation is a far better method of ensuring things get done and done well.

One final thing to note is that there are plenty of stories out there about cash payments having been made and contractors vanishing or never coming back and denying that any money was ever received. 

You need to leave a trail. If it ever came to it, you need to be able to show that you made payments to the contractor/trade.

Most won’t accept credit cards but, due to Section 75 protection using a credit card would be the best way to pay if it’s possible. Some debit or charge cards offer chargeback options so you can get your money back in the event of difficulties, so they’re a decent alternative.

You’re mostly likely restricted to making payments by bank transfer though. Ensure that you have a written record of the contractor specifying which bank account to make the payment(s) into and keep track of the payment(s) you make.

If pay anything using cash, write a note (even if just rough on a piece of paper) and have the contractor sign it as acknowledgment of receipt of the cash amount, ensuring the note specifies the date the money was paid and how much money was paid.