Before signing, find out how the project is funded. Here is how contractors reduce payment risk.
In this article
Why check
Contractors take payment risk on every job. An owner without funding can leave you with unpaid labor and materials. Checking before signing is part of good business.
Ask about funding
Loan, cash, investors or insurance. It's a normal question.
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Lender involvement
For loans, understand the draw process and inspections.
Proof of funds
For cash projects, reasonable proof may be appropriate on large jobs.
Payment history
Ask other contractors and suppliers about the owner.
Deposits
Deposits and progress payments reduce exposure.
Contract terms
Clear payment schedule, late fees and stop-work rights.
Lien rights
Know and protect your lien rights with notices.
Red flags
Pressure to start without a contract, vague funding and history of disputes.
An example
A builder asked a new investor client how the renovation was funded. The answer was unclear, so the builder required a larger deposit and draw schedule tied to milestones. When the investor had cash problems, the builder's exposure was limited.
Where to start
Add a funding question and lien notice step to your pre-contract checklist.
Common mistakes
Assuming big projects mean strong owners, starting without deposits and missing lien deadlines.
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Frequently asked questions
How can a contractor check if an owner can pay?
Ask how the project is funded, confirm lender involvement or proof of funds when appropriate, check payment history with other contractors and use deposits and lien rights.