What Happens to Your Money After You Pay the Contractor

You write one check. On a job of any size that check has to become several, because the person you hired is not the only person working on your house. The framer, the electrician, the drywall crew, and the yard that delivered the lumber are all paid by your contractor out of the money you gave him. You pay one party, several parties get paid, and you have no visibility into the second half of that.

The structure is ordinary. A general contractor prices the job, hires the trades, buys the material, and manages money across all of it. A homeowner deals with one person on purpose, because dealing with nine is the thing the general contractor is being paid to absorb.

The break happens when money that came in for your job goes out for something else. A contractor covering last month's shortfall with this month's deposit is not stealing from you, he is behind, and being behind looks identical from your driveway to being current.

What that leaves is a sub or a supplier who worked on your house, or delivered material to it, and did not get paid. That person has no agreement with you. He was never in your kitchen and you never signed anything with him, and none of that changes the fact that his labor is in your walls.

The document that follows is called a mechanics lien. Who can file one, what it does, how long the window runs, and what a homeowner can do once one exists are set state by state, and this article cannot tell you any of it. The answers are on the mechanics lien guides.

What you can do while the job is running is ask. Ask who is on the job and who is supplying it, ask about lien waivers as payments go out, and keep every invoice and every proof of payment in one place. A homeowner who can name the subs and the suppliers on his own job is in a different position than one who only ever met the contractor.

A milestone-based agreement changes where a job's money sits while the work runs. The customer funds the contract before work begins. The money is held until each milestone is complete, and that portion releases to the provider. That describes how one job's money behaves, and it is not a statement about what happens to that money after it releases.

Rules about liens and construction payment vary by state, and some states regulate them directly. This article is about what people commonly do, not about what any law requires. For deposits and advance payments specifically, see the deposit guides in the knowledge base.

You are paying for a chain you cannot see. The question worth asking before the second payment is not whether your contractor is honest. It is whether he is current.