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my terms are 30% down, 30% start day, 30% 2/3’s in to job, balance when finished.
like you said the crooks hold back and give you a hard time from day one.
i had one customer paid the whole job on day one!! he wanted it no other way. I took his check but waited a few day to cash it.
DON’T change your terms!!
nigel
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Hi Folks!
I'm curious about how others structure payment schedules. My standard approach is to get a 5% deposit on signing of the contract, 20% on start-up, 20% on 1/3 completion, 25% on 2/3 completion, and the last 30% when we're done. Seems reasonable to me, but recently I had a customer call that "unacceptable", and he refused to sign the contract. Do you think my payment terms are unreasonable? I give people 5 days from the date of the invoice to pay, so on a small job like his (2 1/2 weeks), I could easily have had 80% of the job done before he made the 1/3 completion payment. In six years I've only made an exception to this payment schedule twice, and both of those people turned out to be dishonest. Trust is a two way street, if a customer doesn't want to pay me up front in the beginning, maybe he's not someone I'd want to have owing me a pile of money at the end. How do you folks see it?
Ross
*I work by myself, which necessitates hiring subs. Sometimes I will work with the customer's plumber,electrician,whatever. Also, I work on referrals only, so mostly the trust part is taken care of in advance. I trust who referred them to not have sent me a goofball. My goal on a job is to not use my money. Therefore, pmt. are made to cover material, subs if I supply them, and last my labor. A 2 wk job will usually see 2 draws. Maybe 1/3 at time of start and then the rest upon completion. Completion,not 30 days,or I don't have a check. I'm done, show me the money, guarantee starts immediately. Cpl. day job will see one pmt. at completion. 6 wk job typically 3draws, timed when other trades I supply will be completed. I think the most important thing I do in business is keep good relationships with subs. They get paid b/4 me. Same with suppliers. That way when I call, they come. Not because I'm nice, but because they know I'll be straight with them. Need a delivery that won't fill the truck. It comes. So, I guess what I'm trying to say is, I don't have a set draw schedule. Each one is different, customized so I or my suppliers don't wait. If you're more than a one man show, this Buds probably not for you.....at least the draw part.
*Ross,I think you are entirely correct.Most Of my jobs take 2-3 days,Max.I generally require 50% in advance,Balance upon completion.( By completion I mean,generally before I leave the driveway).My reasoning is that if the customer is unwilling to pay 50% in advance ,I don't have much chance of collecting 100% after the fact.I do get a laugh out of your customers attitude that your terms are "unacceptable". To me they seem reasonable and rather generous.I do understand that my approach will not work for everyone.I have a built in advantage in that my customers have a problem(leaking Roof) that they want me to solve.If they want me to accept their problem(and a lot of liability) they have to accept my terms.Most remodeling jobs would involve more discretionary spending than Roofing,but that still doesn't mean you have to turn your business into a finance company for slow paying customers.Do it your way
*Seems reasonable to me Ross. I work mostly t+m but for bid jobs I do something similar. I can see how someone who doesn't know you or do much business would question paying for something before they get it though. I also think some folks (plenty) think that once you agree to work for them, they "own" you and you have to answer to them just because they are good enough to hire you - it's their way, or no way. Usually the latter for me. Control freaks. Nice to see you again. - jb
*Jim,Control freaks: generally employed in the high-tech business, experts in time management, they know more about construction than anyone else and can manage the project quite well without our help, thank you. In their mind, the engineers are amateurs, so they redesign the structural loads to save money. The architect knows nothing about proportions, so they fiddle with the dimensions of the house while it's being built. They like to buy materials, since we don't know where to get the really good stuff (they always end up at Home Depot sooner or later). They can hire subs much cheaper than we can, because we just don't know where to find the really good people (who always end up being the guy down the road on welfare who can do it for $10 / hr. cash and shows up drunk, if they ever show up). And in the end, guess who must have caused the job to take so long and go so far over budget? You guessed it, the "dumb" contractor who should have managed the job better..... pardon me while I vent. Anyhow, it's a good thing my contract terms smoked out this loser before we got involved with him, I smell a techie control freak!
*Ross I also feel that your payment schedule is more than fair. I found out the hard way that you never want to leave a large percent of money due upon completion as this gives your customer a great deal of leverage and knowing that they have the upper hand and they can get extremely pickey. I once built 1200' of fence for a client and drew 50% to start the job and requested that the remaining 50% be due upon completion. I agreed to apply 2 coats of paint to the fence. After the second coat I requested my final 50% and my customer said he wasn't pleased with the paint job and wouldn't pay me unless I applied another coat on the previous two coats. With owing me 50% he had me where he wanted me. Since that time if I have a job that is longer than two weeks I divide my draws up so that I'm in control and not my clients.
*Ross:I offer different schedules depending on size of the job.On small jobs that only take a few days, usually 20% deposit, 40% first day, and 40% last day. (Not five days later)On larger jobs, There may be 5 or 6 payments. I try to never leave more than 10-15% due at completion. Any more gives the customer too much power.This is the only industry where you offer credit to the customer, often several thousands of dollars, without any collateral or even a credit check. Although I don't always do it, I believe in getting enough money early enough to be able to work with the clients money instead of working with my own. If someone can't come up with 5% deposit, walk away.
*my terms are 30% down, 30% start day, 30% 2/3's in to job, balance when finished.like you said the crooks hold back and give you a hard time from day one.i had one customer paid the whole job on day one!! he wanted it no other way. I took his check but waited a few day to cash it.DON'T change your terms!!nigel
*Your terms sound reasonable. I think it's important to structure the deal so you have the cash in hand to pay the subs and to pay for materials before the day the job is completed. That way, if you do have trouble collecting the final draw, it's your profit that you're out. Not to say your time and efforts are expendable, but just try to structure it so that if you do get "stiffed", you don't have to stiff someone else or raid your kids' piggy banks to make payroll. That's your basic fiduciary responsibility as a businessman.I can go hungry for a few days and it won't adversely affect my reputation. If I can't pay those I'm beholden to, I'm in trouble. And embarrassed. Of course, one of the first steps in business should be to build up enough cash reserves to hold you through the inevitable delays.If you have a lawyer, it's of great assistance to send the delinquent a "personalized" form letter full of legalise "encouraging" them to pay in a timely manner. With all the faux legal software out there, I've seen guys write their own. Nothing fancy, you could even consider it a professional bluff. They call your bluff, then you get tough.They gripe up front, walk. It's tough to do the first time, but easier then getting stiffed. As others have written, trust your instincts.
*Amen, amen, I say.We always get a deposit to bind the Proposal into a Contract. We don't set a start date until we have the deposit. I know that some states don't allow you to do that, so anyhow....... We also include the required notification that the Owner has a 3 day Right of Recission and we include language about our right to file a lien for non-payment. Other than that, we tailor every payment schedule to suit the job based on our cashflow estimate of how the job will need the money. REAL embarrassing if you can't meet the payroll. We leave only some of the projected profit for the last payment , which is due on SUBSTANTIAL completion.We also have a clause requiring Arbitration over any unresolved disputes. It took us 25 years to find that all of these clauses are neccessary to protect us and our customers. If some unscrupulous customer forces you into bankruptcy, you won't be in business to take care of your good customers.It's a two way street, and for the contract to be enforceable it has to say that we will do such and such and the "customer will pay us". That's the quid pro quo, and if they can't agree to that then let someone else with a bigger ego take care of them.This is very simple payment terms. For new Construction, Custom Homes, I would be looking for a 20 to 30 item payment schedule with easily defined thresholds"when the roof is sheathed", "when ready for plaster" etc.
*50% to start & draws to follow. I usually split the difference on the remaining for 2 more draws.The exception to this is if it makes the amount of the last draw too much for small claims court.I also try to get a draw a week, it helps the cash flow tremendously. I want paid for my labor as I go along. It's no fun to be at the end of the job with only the materials coverd & have customer pick things apart & refuse to pay untill the b.s. items are taken care of (been there). If some one dosen't like my terms....See ya. I'm not making it easy for any one to screw me again. I took my turn in the barrell & didn't like it.
*I like the idea of not haveing any more due at completion than you can get in small claims court. Of course that wouldn't work all of the time. One problem here is that I live in a hurricane prone area and people are wary of giving money up front due to the scam artists that tend to follow disasters. The news people here even broadcast stories telling people never to give any contractor money up front. At least most of the people that I deal with understand that trust is a two way street.
*I usually get 60% or better before I even start. Anything less and I am not interested. At least if I take a hit, my material and part labor is covered. I demand final payment IMMEDIATELY upon completion. I am not a loan company...I am a contractor.I have though seriously about starting an escrow service here for just these reasons. I would hold the entire job amount as a third party, release payments on a set schedule and charge a perrcentage for my efforts. Probably 2% which could be added to the price or simply absorbed by the contractor. this would guarantee payment but waivers would have to be signed to protect the customer also...such as a statement of acceptability for the amount of work done to release payment. This would be the best thing for those larger jobs where more money can be lost. What do you all think about this?Pete Draganic
*Escrow sounds like a decent idea, though it would have to be subject to some dispute resolution mechanism.... Although it would assure that the money is there, it wouldn't resolve who should get it.Most deals are done on a handshake, and as a homeowner i rely on the reputation of the contractor -- years in business, state licensure, some vague intuition that I think I have in talking to a person, etc. -- as a guarantee. I didn't think twice about 50% down on the A/C replacement we purchased, although i doubt that even covered materials. The contractor could have always struck back with a mechanic's lien if I hadn't paid the remainder -- or, smarter yet, insisted on payment then and the subject to ripping the thing out on the spot. I feel a lot better now that I feel I can keep an eye on what the person is doing and tell if they're f*cking around. Frankly, it scares the heck out of me to hand over a bunch of money to someone ahead of time ... probably why I feel surprised when someone gives me a check for a couple thousand when I haven't done anything!Maybe the customer could pay for materials directly or something? Nah, I like the trust approach best. Speaking of which, i agree that leaving 50% for the completion can be unfortunate with a nitpicking client. I'd hate to give up my profit, though, as well.Anyway ... Ross, all you lost here was a bozo client.
*Very interesting...I have to agree with a lot being said, but as a small operation, I deal a little differently. In Texas, I cannot ask for more than 10% up front. If it's a small job, it's no big deal. On big jobs, it can get kinda scary. When it's a big job, I get 10% up front, and a material deposit (which is legal). My material deposit covers ALL of my material. If I do get burned, it will only be for labor, and not a whole lot for labor. I bill my work in "Stages". For example, when doing a bath remodel, Demolition is stage one. When everything is removed, and down to bare studs, I get paid. If I don't get paid, I don't come back. Now the client has a bathroom that is gutted, and no contractor. Plus, they have already paid for the material. It would be very unwise for them to NOT pay me. When the new drywall is up, I get paid (stage 2), tape, float, and texture I get paid (stage 3), and so on. All payment schedules, and descriptions of work to be completed each stage is detailed in my contracts. If I don't get my 10% and material deposit, I don't sign the contract and start work. It's now a world where we gotta cover our asses. James DuHamel
*I think it depends on what service & materials you are providing. Around here, for many trades, the GC supplies the materials, and subs get paid when complete for 1 or 2 day jobs, or get draws based on % of completion for larger (longer) jobs. Plumbing, HVAC, and electrical supply their materials. Payment terms are usually something like 50% for rough-in completion and inspection, and 50% for trim out completion and inspection. For quick jobs like asphalt shingle roofing - the GC is billed for the entire job - materials and labor - on completion. I see no reason for a sub to get a large "deposit" up front unless he has a significant investment in materials to make, and even then, he should have enough credit with his building supply to not require payment until materials are on site. As far as "my terms are 30% down, 30% start day, 30% 2/3's in to job." Lets see, that means you get 60% for doing a takeoff, submitting a bid & showing up the first day, and later, having completed 66% of the job you have gotten paid for 90%? Maybe I missed something - like you provide all materials on site the first day? - Still, I would not go for that, unless the service being provided has a high material to labor cost ratio (in favor of the material side). Good way to get burned. You must cater to a pretty exclusive clientele?I don't feel that either party should provide a loan to the other (in the form of money owed for more than a week), but I also have no use for subs that want to get paid on a daily basis, or need to get paid up front. Weekly draws are reasonable, and I always carry the checkbook so that payment is made "on the spot". Let's face it - nobody in our society - heck, probably in the world, has a right to get paid for the services not yet provided. The first definition in Webster's Dictionary of the word "Pay" is "To give to (a person) what is due, as for goods received, services rendered, etc." Case in point, for construction loans, draws are given based on tasks completed - not good intentions.Around here, Mechanics Liens are easy to obtain and protect the provider of services. The "mechanic" usually wins. Anybody who needs to get paid up front, once again, either needs significant $ to pay for materials (which is reasonable), or needs the $ to pay his help for the last job - go figure. Part of being in business for yourself is to have start-up capital for a job - in fact, in this state, it is one of the licensing requirements. True, "trust is a 2 way street" but as someone in a post several months ago said "keep hands, feet & genitals away from spinning blade" (or something like that). In other words, use common sense. Sorry guys; money up front for labor doesn't cut it. I get the idea much of what has been said in the posts above pertains to the remodeling business, which I know nothing about that. My comments refer only to new construction.That's how I see it.
*a sidelite to the construction loan reference. when we built 12 yrs. ago, i (being a self employed carpenter...read that as a horrible, probably get divorced,won't finish,risk) went to the bank for a construction loan. had to show income background but did find a bank to give me one. i then had to convince them that i needed draws TO DO THE WORK,as i was doing most of it myself. they would say"we generally give draw money after a portion is done". i did manage to convince them to pay up front for the work i needed to do. we added draws(a cpl more than normal, which i pd the extra inspection chg., about 75 a pop.) seemed like each time i did a request for a draw they had a new branch mgr. don't know if this was normal, but a good credit rating from my suppliers, and a lot valued near what i wanted to borrow probably enabled them to take a chance. it sure worked for me.
*Andrew,Around here once material is on a job it is the property of the homeowner. A roofer friend of mine had a truck load of copper delivered to a job. The homeowner then fired him on the spot before work began. He was not allowed to pick up the materials. Took him forever to collect that money.Much of the work I do is for customers we have been dealing with for years, those are billed upon completion. We are just starting to get money up front for small jobs. Big jobs are billed on the first payment by the 10th. We keep enough cash on hand to last for a month+. Only been to court twice in 50 years.Rick Tuk
*That's a good question about the material -- who owns it. Under trespass rules, the property owner can kick you out any time they want, but if it's your property you ought to be able to retrieve it. A drill left behind after the eviction, for example, you ought to be able to get back -- and the property owner didn't pay for that either. I really don't know the answer, and hope not to find out! A common local rule is that the truck doesn't unload until the check passes hands, though most delivery guys don't care so long as they get it before they leave.
*For myself, the ppost does refer to the remodeling end. Iused to follow a payment schedule close to Matt but no longer do (see my previous post). I don't have to shut my hand in a car door twice to find out it hurts. As for mechanics leins, all that does is keep a propertey from being sold untill the lein is settled. While that may work on a new build, it is not of much use in remodeling. Hence leaving the final payment not more than you can take to small claims court. Lawyers are expensive.Too expensive to chase $3000.00. Small claims in my aresa cost about $25.00 to file. That & my time are consideribly less than the attorney.
*Hey Ross, hope business is well! (I'm sure it is for you)Here's an update to the addition where the owner had a problem with giving you the deposit. After the problems with the inspections I told you about last time... the job was substantially complete after 6 months....Ha ha ha.They bastardized my plans, nixing the acessible washroom and his framing was flawed in the section of cathedral ceiling...(no tie backs and no structural diagonal support back to the exising house to prevent it bellying,(cracks at the ridge and wrinkeling drywall to come). They decided to forgo my inspections and they will NEVER, EVER recoup the money they have wasted. It would cost somewhere in the order of $35000 to put it right...since they couldn't match the brick....so they just went with a different color...LMAO. It was the most rediculous disasters in modern building history...all this in an effort to save a couple of thousand dollars. Feel glad you missed out on this opportunity to be flogged financially Ross. (It took me 3 months to collect my bill). As for me...every job is different. Typically I get 10% down, once the footings and excavations are done and the first load of materials arrive on site, the first payment brings it up to 60 or 70%. On a short job payment in full upon completion. Longer jobs have to have a payment schedule that is fair and reasonable to both contractor and client without a feeling of victimisation for either. It would be a good thing to include in the terms a proposed method of dispute resolution, (mediation). I am spoiled with good clients, partially because I don't deal with neggociators, (even friends). As I have said thousands of times before...if they neggociate before the contract is signed...trouble will follow. Oh, by the way...2. Title and ownership in and to the materials shall remain in seller at buyers risk until the entire purchase price, interest and all costs are fully paid in cash including payment of any note, renewal note, or extension given judgment secured. Buyer will not part with possession of the materials and will keep the materials in good condition and free and clear of all liens and encumbrances. Seller may pay any item or charge upon the materials or property to which the materials are affixed and add the amount thereof to the amount hereby secured and the whole amount hereby secured shall fall due forthwith.This covers the material ownership disputes here in Canada.Good business to all!
*Actually, a mechanic's lien is a bit different, at least as I understand it. You can force foreclosure, but only if you bring an enforcement action within the statutory period set by state law (some number of days or months). If the debt is not settled, the court can order the auction of the property to satisfy the debt. On the other hand, if one files a lien and does nothing more, it will in time expire and not encumber (pass with) the sale of the property.
*Thanks for the smile, Lawrence, I don't wish anyone bad, but the cathedral ceiling framing problem sounds ridiculous! As I recall, wasn't that job one of those where the owner didn't want to put out any money up front? Sort of makes my point, when people are looking to get something for nothing, that's what you should give them! Good to see ya :)
*My projects are generally large so the breakdown is usually in smaller percentages based on parts complete Or stages of the job,ie. Foundation, framing, roof, drywall,etc. I'm not a bank so I don't finance the job and always require a deposit of no less than 5% upfront. Never leave more than 10% in the final pymt and try for less. Your profit and maybe some of your overhead is in that figure. If the client doesn't agree, thank them for the opportunity to bid, then walk. Many times they will call you back, if not it was a mistake to work for them anyway!