My subcontractor wants a deposit before starting. Should I pay it?

You know this transaction from the other side: asking your client for money up front is a page in this series, and every caution it gives the client now applies to you. Money ahead of work is a loan, and the questions are a lender’s questions.

First, understand what the request means

Usually one of three things, and they deserve different answers. A materials problem: the package starts with a big buy, steel, glazing, switchgear, and he cannot fund it. Legitimate, common, and solvable without cash to him at all (below). A cash flow problem: the deposit is not for your materials, it is for his last job’s wages. This is the request to be slowest with, because you are being asked to finance a business, not a package. A trust problem: he has been burnt by main contractors and wants comfort. Fair enough, and often the real answer is your payment terms in writing, on their own dates, unconditional, rather than cash.

The three safer routes for the materials case

• Pay the supplier directly. Open the account or pay the pro forma yourself: the materials risk stays, the his-creditors risk goes, and you know the money bought steel rather than wages. The usual counterweight: he loses his trade discount and his margin on supply, so expect the package price to reflect it, and decide with open eyes.
• Pay on delivery to site, against the invoice. Not up front, but weeks earlier than the valuation cycle would pay it: often exactly the acceleration he actually needed. Once on your site, treat the ownership question seriously, unfixed materials, retention of title clauses and what happens to the pile if a company in the chain fails are their own subject.
• A true advance with recovery machinery, for the cases where cash to him is the only workable answer: written into the subcontract, recovered by stated deductions from each payment, security considered on big sums, which is where the advance payment bond reappears with the roles reversed. If the recovery wording is not written, you have made a gift with a memory attached.

The insolvency arithmetic, said plainly

An unrecovered advance to a subcontractor who fails is an unsecured debt in his insolvency, which in practice means gone, and unlike your client-side exposure, nothing in the payment machinery protects it: it was your commercial decision. So size the advance like the lender you are: against a sub you know, on a package where you can see the materials, at a fraction you could absorb, and never out of money you are counting on to pay the subcontractors whose dates are already fixed. If paying this deposit would make you late elsewhere, the answer was no.

On a domestic job, the chain view

The classic squeeze: the homeowner’s stage payments are whatever your contract says, no statutory floor (section 106), while your sub’s deposit leaves your account today. If the job’s shape genuinely needs early materials money, the honest structure is symmetrical: a materials deposit from the client, taken and accounted for properly, funding the supplier payment downwards, so the early money flows through you rather than out of you.

What to do this week

1. If a request is on the table, name which of the three cases it is, by asking what the money is for, and offer the matching route rather than the transfer.

2. For any advance you do make, write the recovery schedule into the subcontract before the money moves: amounts, cycles, and what happens if the package stops early.

3. Check your own chain for deposits already out there undocumented, and paper them now, while the relationship is good and the memory is shared.

Where the information stops

Whether a struggling but essential subcontractor is worth financing is a commercial judgement about his business, and the signs that distinguish a cash flow wobble from a company dying are exactly what credit checks and accountants are for; on a five-figure advance, an hour of either beats any amount of optimism.