Experts warn why you should (almost) never pay a contractor in cash

However tempting it might be to pay cash in hand for building work – especially if it leads to a discount or better availability – here’s why it should be avoided.

Hands up who’s heard this line from a potential contractor: “I can do it cheaper, if you pay in cash”? The cost of living is squeezing purse strings, so paying less for work is undeniably enticing. But, as tempting as it may be to save money on extending or renovating your home, there are good reasons why you should avoid paying for building work in cash.

We asked some industry experts to shed light on why it’s best to keep your pound notes in your wallet and pay contractors via bank transfer.

hand holding British pounds notes - table in background with pound coins and model houseCredit: Shutterstock / Dobrovolska Olga

Why paying for renovations in cash is a no-no

Always pay for substantial renovations by bank transfer

If you’re about to take on a large-scale renovation or extension project, then you’ll be excitedly calling in quotes from potential contractors. Getting at least three quotes will help you understand what you can get for your budget, too. But a word of caution – don’t opt for the cheapest if it’s a “cash-only, word-of-mouth, we-can-do-it-now” quote, with no paper trail, however enticing it may sound. 

“It can be tempting to pay significantly less for a renovation project by agreeing to pay cash in hand,” explains Jana Kejvalova of Suited Insure. “Some builders may be willing to shave 20% off the price and put this down to not having to pay VAT on the project. But the reality is that without a proper invoiced paper trail, there is no real record of the job ever having been done.  

“That would be fine if everything went like clockwork. But if something does go wrong and there is no record [of the contractor having done the job] then it could be extremely difficult to persuade an insurer to pay out if the problem is bad enough to have to make a claim.” 

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Pay via bank transfer

Quantity surveyor Tim Phillips from Quantiv.uk agrees and explains why paying a contractor for building work this way is a wise move: “I always recommend clients pay their contractor by bank transfer on mutually agreed payment terms, set out in a contract.  

“Paying in cash and failing to keep adequate documents leaves you at risk in situations where you may need to hold the contractor accountable for their performance or take legal action. In the long term, keeping a clean and documented paper trail protects your interests and guarantees that you have documentation to back up your claims in the event of a disagreement.” 

Choose a contractor who agrees to paperwork 

It’s wise to choose a contractor who agrees to detail the job in a schedule of works (SOW) – an itemised list of the jobs they’ll undertake. This will be proof of what the job entails. It will also outline expectations on things such as order of works, timescale and materials.  

Secondly, choose a contractor who also documents the cost and their payment terms transparently. This will help to clarify in writing how and when you pay the contractor. A contract and payment schedule will make information clear to both parties before work begins.

Your insurer may not pay out if there’s an issue

Evidence of work is crucial if you need to hold a contractor accountable

Most home renovation projects go well. But the unforeseen can happen – contractors may cause damage to your home, something may not work as it should, the wrong order of materials turn up. If issues crop up, communication and conversation will usually solve these things on site. After all, accidental damage or a mix-up with orders can happen. Plus, “businesses must abide by some implied terms of service, explains Phillips. “Any services provided must be performed with reasonable care and skill, and within reasonable timeframes and fixed costs.” 

But what if you find yourself in a situation where communication has broken down and you’re left in limbo? Perhaps your contractor has walked off site or point-blank refuses to sort out the problem? You might need to turn to your insurer to make a claim. But, if you’ve paid in cash, will you be worse off trying to hold a contractor accountable for their work? 

“In the United Kingdom, the Consumer Rights Act of 2015 protects consumers when they conduct business with traders,” explains Phillips. “When there is a sufficient paper trail in place, these safeguards are easier to enforce. If the job is of poor quality, something is damaged during works or there are other concerns, cash transactions may make it more difficult to enforce your rights. Equally, if the business becomes insolvent halfway through the project, the possibilities of raising a claim are severely limited with no paper evidence, too.” 

“A well-documented paper trail gives confirmation of the project’s terms and conditions, mutually agreed-on schedule of work, and payments made, which can be helpful during legal procedures or insurance claims,” continues Phillips. 

Experts on our Saga Insurance team agree, saying: “It would be logical to assume that with no evidence in the form of formal documentation (a contract), a claim is more likely to be declined.” They also advise thatpursuing a claim against a contractor for faulty workmanship, for example, would not be covered under Saga’s core home insurance policy, and customers would require the optional legal expenses add-on to claim for this, which is commonplace in the market.”  

Check your insurance cover 

You should talk to your insurance company before building work starts to ensure you have the right cover in place, including any additional cover you may need. 

“One of the key conditions of being able to claim under legal expenses is that there is at least a 51% chance of success, and without this, the claim would be declined – again, a common exclusion in the market,” says our Saga insurance team.  

That’s why paying a contractor in cash for large-scale projects is ill-advised. Having a paper trail could increase your chances of a claim being satisfied rather than declined.  

Problems post-project are easier to sort if there’s documentation

Paying cash in hand can make post-completion problems difficult to rectify

If a contractor refuses to come and fix problems post-completion, then you might find yourself in a tricky situation if you’ve paid in cash. “If you have receipts and a contract outlining a SOW, then it shouldn’t make it hard to ask a contractor back to rectify any issues that arise once they’ve finished,” says Phillips. “However, problems could arise if they refuse to rectify issues and you haven’t got documentation to prove they did the work in the first place.    

“As mentioned above, the Consumer Rights Act of 2015 will provide you with some protection but will be more difficult to enforce if you just have a handful of paper receipts, or none at all. If there is no clear paper trail of the cash payment, trading standards, your insurers or lawyers may be unable to assist you. Also, the contractor’s liability insurance may refuse to pay a claim if there is no receipt of the cash payment.” 

Avoid paying upfront for materials 

“I advise clients not to pay cash upfront for any labour, materials, etc prior to the commencement of a project,” says Phillips. “Most trustworthy contractors or individual trades will have trade accounts with reputable builders’ merchants with their own agreed credit terms, therefore any payment upfront shouldn’t be required.  

There may be an instance where you have a material, like electrical parts for example, which are costly and are being procured from abroad. The contractor may therefore request direct payment to the supplier, rather than paying themselves and waiting for reimbursement. But in general, avoid any upfront payments for basic materials.”

Is paying cash for renovation jobs ever OK?

You can pay cash for small contractor jobs, but get receipts

Paying in cash for smaller-scale jobs isn’t a bad thing. In other words, you needn’t worry too much if the job you need doing is unlikely to cause wider issues in your home.  

“There are some small jobs around your property under £100 that may warrant the use of cash,” says Phillips. For example, rehanging a door, installing shelves and putting together flatpack furniture are all small-scale contractor jobs where there’s less chance of something going drastically wrong.  

If you do go down this route, it’s crucial to get a receipt for the work when you pay in cash. “Paying a builder in cash is a fully legal transaction; however, there are no legal ramifications without any proof of payment,” says Phillips. “A receipt from the contractor would help verify that you paid by cash. However, I would still advise paying by bank transfer because your paper or electronic bank statements will have a clear record of the payment. You could also use references when making payments via your bank account for the project, such as ‘Smith builder payment 1’ to make it clear the payment is going to the builder.”   

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Michelle Guy

Written by Michelle Guy she/her

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With an editorial career spanning more than 20 years, Michelle Guy has spent time working on educational magazines and websites as well as being a freelance copy editor for companies like BT, until her career pivoted, and she moved into and embraced the world of homes and interiors.  

Working on magazines and websites including Homebuilding & Renovating, Real Homes and Period Living, Michelle honed her skills writing about all things renovation, extension and self-build. From interviewing homeowners to writing buyer’s guides, from sharing advice about kitchen renovations and extensions to design ideas for bathrooms, Michelle has written about a whole range of home improvement projects for discerning home improvers and keen DIYers alike.