Paying a Contractor or Tradie: Using Escrow for Home Projects
Home improvement work can create a payment-timing problem for both customer and contractor. The homeowner may not be comfortable making a substantial direct payment before agreed work is complete, while the contractor may need confidence that the customer has the funds available before committing labour, materials and/or time.
Escrow can separate funding from settlement meaning that the the tradie can be sure their payment is waiting, and the homeowner can still “pay” the tradie only after the work is done. The customer can secure the agreed payment in escrow first, while settlement to the contractor occurs later in accordance with the transaction details. This can be as a one time or staged payment depending on the scope of the project provided legal requirements and legislation is not violated.
How can escrow work for a contractor payment?
- Agree on the work and payment. Customer and contractor document the scope, price and relevant completion or handover point.
- Establish the escrow transaction. The parties create an eligible GoEscrow transaction reflecting the agreed payment.
- Fund escrow. The payer funds the agreed transaction amount.
- Confirm funding. The contractor can independently check the GoEscrow transaction status and see that the funds are waiting.
- Complete the agreed stage. The contractor performs the work or agreed project step.
- Authorise settlement. When the applicable conditions are met, the payer authorises settlement and GoEscrow remits the escrow funds to the payee in accordance with the transaction.
Why not simply pay the contractor in advance?
Advance payment can shift payment risk toward the customer. Completing work before payment can shift payment risk toward the contractor. Escrow can reduce that timing conflict by showing that the agreed money has been funded without immediately settling it to the payee.
Escrow does not remove the need for an appropriate contract, quotation, invoice, licence checks, insurance checks or other due diligence relevant to the work.
What about a builder deposit?
Building and renovation deposits can be subject to contracts, legislation and state or territory requirements. GoEscrow should not be used to bypass any legal limit or mandatory payment regime. Before using escrow for regulated building work, the parties should make sure their payment arrangement is permitted and consistent with their building contract and applicable law.
Where an escrow transaction is appropriate and eligible, it can provide a mechanism for securing an agreed payment separately from final settlement.
Renovation and home-improvement payments
Renovation projects often involve several commercial steps: quotation, deposit, ordering materials, commencement, progress stages and completion. The correct payment structure depends on the contract and the nature of the project.
GoEscrow can support eligible payment transactions, but it does not determine whether work is complete or satisfactory. The parties must define and assess their own commercial obligations.
A real-world example
Sharon has decided to use Bob’s renovation company for the changes to her veranda, which will cost a sizeable, $6000. Sharon has never used Bob’s services before and so is unsure whether to trust him and pay up front for the work. Bob also doesn’t know Sharon so he is scared that once he completes the work, she will decide to never pay him and keep the $6000 for herself. Sharon and Bob decide to use GoEscrow to solve the payment timing problem. The pair create a GoEscrow transaction for Sharon’s veranda renovations, and set the price at $6000. Sharon then funds the $6000 escrow transaction, which Bob can see on his GoEscrow app. Knowing that the payment is secured in escrow, Bob completes the work on Sharon’s veranda. Satisfied with Bob’s work, Sharon confirms to release funds in the GoEscrow app, and Bob receives the $6000 to the nominated settlement account.
What should homeowners check before paying?
- The contractor’s identity and business details;
- required licences or registrations for the work;
- insurance where applicable;
- a written scope, quote or contract;
- the amount and timing of each payment;
- what must happen before settlement;
- how variations will be handled; and
- the applicable GoEscrow terms, fee and transaction limits.
What should contractors check?
Contractors should independently verify the GoEscrow transaction and funding status. A screenshot, text message or emailed receipt supplied by the customer is not the same as checking the payment state through the relevant service.
The contractor should also make sure the escrow arrangement aligns with the underlying contract and invoice.
Does GoEscrow inspect the work?
No. GoEscrow manages the financial interaction. It does not inspect building or trade work, certify completion, determine workmanship, approve variations or decide whether a contractor has met professional standards.
What if the parties disagree?
If the parties disagree before settlement, funds can remain in escrow while the matter is addressed under the applicable GoEscrow cancellation or dispute process. The outcome depends on the circumstances, party instructions and applicable GoEscrow terms.
Frequently asked questions
Can I use escrow to pay a tradie?
GoEscrow is a service that has been designed with this use case in mind. The simple operation of the GoEscrow app makes it easy to securely pay contractors in many cases. The arrangement must also be appropriate for the underlying contract and any laws applying to the work.
Can a contractor see that I have funded the payment?
Both parties can use the GoEscrow transaction status to independently confirm the funding state of the eligible transaction.
Does escrow replace a building contract?
No. Escrow is a payment mechanism. It does not replace the parties’ contract or applicable building and consumer laws.
Can escrow be used for progress payments?
In many cases, GoEscrow can be used to stage payments for release after milestone completion. The appropriate structure depends on the project, transaction type, contract and applicable legal requirements. Parties should not use escrow to bypass a mandatory payment regime.
More payment-risk guides
Homeowners can read Paying a Tradie Deposit. Contractors can read How Can a Tradie Know a Customer Has Funds Before Starting Work?. See also Progress Payments and Staged Payments and Retention Payments in Construction.
Related GoEscrow information
For the broader payment model, see Escrow Services in Australia: How Escrow Payments Work. Businesses can also read Business Escrow in Australia: Secure Payments Between Businesses.
Product information
Before proceeding, review the Product Disclosure Statement, Financial Services Guide and Terms of Use. Check the applicable fee and transaction limits before funding.
