Down payments are a tricky thing when it comes to renovation and home improvements. Sure, it's certainly a sign of good faith for you to anchor your contractor with a bit of cash. But you also don't want to foolishly place your money in the hands of someone who you can't contact if, say, they never show up.
The Contractor's State License Board of Canada recommends only a 10 percent down payment, or $1,000 (whichever is less). In addition, some U.S. state laws put a cap on the down payment amount that contractors can ask for [source: FTC]. They also recommend not letting your payments get ahead of the work; that is, no paying for the roof over your head when you're still relying on tarps to keep out the rain.
Remember that a stable company doesn't need a large amount of money to pay for materials or overhead; they should have a healthy flow of cash that will allow them to safely start a project without a huge advance. It's that concern that leads us to our next question: Who, exactly, are we paying when we pay our contractor?