8 Methods for Paying Contractors

Your home improvement project is finally done, and now it’s time to pay the contractors. But before you go running for your wallet full of cash, you should be aware of how to pay contractors and all the options available. There are several ways to legitimately pay contractors for a job well done and they aren’t all created equal.

Let’s break down all the methods for paying contractors while keeping a good relationship with the professionals you hired.

Things to Consider

Before you get out your checkbook, there are several factors to consider about your choice of payment method. First, you need to determine how many contractors you’re hiring and how often they need to be paid. This factor alone may narrow down your payment choices, as some methods may be better suited for one-time exchanges.

It’s also important to gather the necessary payment information and documentation for tax-related purposes. Before making your first payment to your contractor, confirm that their tax documentation is accurate and their team members are classified as licensed employed contractors to avoid payment issues. Once these factors are squared away, you can review your payment options to find the right one for you.

Options for Paying Contractors

Check out these common methods for paying contractors to determine what works best for you.

Checks

If you are paying your contractor by check, these payments typically go towards paying workers’ wages and materials.

Always make copies of your checks, a copy for your records, and a copy for the contractor’s records. With checks, there’s an element of control via the bank that makes some homeowners feel more comfortable.

Cash

While paying cash might seem the most straightforward, it can be a problem if your contractor insists it’s the only method of payment that they will accept. The Federal Trade Commission warns that a contractor who only accepts cash could be less than legitimate.

If you’re still determined to pay with cash, it can still be an option. But just as an added measure, always make sure that you ask for a receipt for the cash once you’ve paid. 

Tip: Find out your contractor’s preferred payment method well before the first deposit comes due. You should also determine what their expected payment schedule will be—more on that in a second.

Wire Transfer

A contractor may request a payment by wire transfer if the speed of payment is an issue. With a check, it can take between three and seven business days for the funds to become available. If you pay using a wire transfer, the funds are available to the person receiving them right away. That is the pro and the con of the wire transfer; Once you send that money, just like cash, it is gone. Most wire transfers also cost money. Expect to spend an additional $50 in fees on your end and the contractor’s end.

Credit Card

Credit cards are a great way to make payments to contractors. You can still divide up your payments with a scheduled series of smaller deposits that you can later cancel if needed. You can pay a contractor with your credit card by filling out a credit card form or by using a smartphone app and accessory system.

If keeping records is of the utmost importance to you, credit card payments are the right option for you. Statements give you easy access to a history of your payments, and your credit card company can help you should any disputes arise.

Debit Card

While it can be tempting to pay with your debit card, it’s not typically recommended. While your debit card may look a lot like your credit card, they operate differently. When you make a payment with a debit card, the funds are immediately made available to the recipient.

As a debit cardholder, you lose rights to your money the minute you agree to make a payment. That can make trying to get your funds back if an agreement isn’t reached a serious hassle. 

Cash and Accounting Apps

Cash and accounting apps are rapidly becoming the primary way business is done. Apps like PayPal, Venmo, and other similar systems make payments a snap and can even offer some serious protection.

That said, not every contractor accepts apps as a form of payment. If you would rather use an app to pay a contractor, you should factor that into your hunt for a contractor in your area.

Which Payment Methods Do Contractors Typically Prefer?

Checks and wire transfers are two of the popular payment methods with contractors. Checks make it easy to keep records on the project, and wire transfers are a great way to move money quickly so that work doesn’t slow down. 

Before you pay your contractor, find out what methods they accept and what they prefer. This is information they will be happy to provide. When putting together a team of several contractors, make sure you speak with each about their payment methods. 

Note: Tipping

You may be wondering if you should factor in a tip for your contractor. Because contractors usually work on an hourly rate that has been agreed upon by both parties, no tip is required. While you can certainly still offer one up, some companies don’t let their workers accept tips, so this could also be something to discuss ahead of time.