Another thread got me thinking about this. One of the greatest risks that a contractor or tradesman takes is spending your time and money (materials and labor) on a project only to have the customer not pay you, short you or put you off for a long time.
Knowing this, I understand why some contractors ask for down payments, but that is ofter seen as a poor business practice. It also spooks new customers, especially if they don’t know you.
So, are there any ways to avoid getting fleeced while trying to get and keep work?
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I dont think its unreasonable to ask for money up front from your customers. Many people even require a percentage of the bid amount down just to get on the schedule, then another payment before the job begins. Further more, then there is the scheduled payments due at completion points as the project progresses.
Your final payment when your all finished should be what? 5-10% of the project Total bid amount???
Somebody said once or twice, maybe 13 or 14 times (maybe Mike Smith) Your are doing something for your customers that is building real equity in there home. Never use your own money. Thats like giving out a Loan for Free.
Edited 3/16/2006 9:40 pm ET by HandySteve
A line on your cost sheet (company eyes only) should be a calculation of carrying charges (overhead). Our customers are very comfortable with little or nothing down and progress payments.
Unfortunately, bad contractors have made a bad representation of contractors. We are up against difficult situations in the building busiess, and extra steps in the financial realm to keep a customer comfrotable goes a long way, both during thieir project and future references.
It works so well for us that I am not looking to change.
Even a pizza maker working by the hour for Pizza Hut finances in a small but exemplory way, as he does not get paid until he has put in the hours.
Edited 3/17/2006 11:11 am ET by txlandlord
"I understand why some contractors ask for down payments, but that is ofter seen as a poor business practice. "
I can't say I agree with that statement at all. Why in the world would it be considered a poor business practice to ask someone to finance their own project? I think the only time it would be considered a poor business practice is if it is not explained what the money is for.
I get 10% down to hold a spot on my schedule. I explain that is because we are generally booked 6-8 weeks out and it keeps people from deciding to use their money for a down payment on a car or some other impulse item after they have verbally commited to me. This way I have a commitment both in writing and financially. I have only had a few balk at this and to me that in itself was a red flag.
I also listen carefully during the conversation. If they talk about the people they have had work for them I ask who it was and if they were satisfied. If they have nothing good to say about anyone that is a red flag.
I listen for the things in a job that are important to them. If they aren't the same things that are important to me that is a red flag. You need to see things the same as the client or it will be a long job.
We live in a smaller community so I try to find out where they work and if we have common aquaintenances. If so I don't hesitate to call and check on them too. These are just a few. This has come up before and a lot of these guys are sharp at weeding them out. DanT
Excellent post DanT.
Young fellers; heed those words of wisdom! Stop putting your family's money at risk!
blue
If you have a good reference list it's easy to get money up front.
People are more likely to trust you when they hear good things from other customers.
I generally get a small deposit to put the job on the schedule. Before I start the job I get a second payment to cover all of the up front material costs.
Stop, drop, shut 'em down, open up shop.
Perhaps a good way to not getting fleeced.
Since your fairly new to the game and hungry, your bound to take what you can get. Bad customers and all. Happens alot to me.
But you can avoid them types generally by trusting your gut feelings. Figure out a way to pre-screen people over the phone during that first phone call.
When working for someone, have it in writting. Write up a very detailed proposal if you have to. But put it in writting and go over it with your customer. Everybody is on the same page.
Changes to original....put it in writting, have them sign the change order and agree to the additional charges.
Positively without fail, collect 100% of total amount for any special order Items, BEFORE you order that special order Item.
Those are just a few things off the top of my head
GOOD LUCK
1/3 upon starting the job....end of story. The only bad business practice is worryin that that'll spook the customer. Better them spooked than me becaue I KNOW I'm honest.
I don't ask for money up front days before I start but I expect 1/3 "upon" starting for small jobs. Larger jobs get broken down accordingly.
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"I understand why some contractors ask for down payments, but that is ofter seen as a poor business practice"
The only poor business practice in this scenario is not getting a down payment. If a homeowner is unwilling to fund their project from the start then I'm certainly not willing to do it for them.
I accept credit cards. If a customer who doesn't know me seems squirrelly about writing a deposit check I charge their credit card instead. They know they have recourse thru their CC company (and so do I) in case something happens. It's an easy solution.
Just over a year in business and haven't had any problems yet.
-Norm
I am not looking to change anyone or suggest anyone's arrangement is wrong, and I understand that new home construction can be different form remodel / additions and small projects, but what happens:
If you are a small company and you do the work and the books. (You may be the only person in a company).
You take a 10% - 30% downpayment, have every intention to honor your agreeemnt, but you get hit by a bus and die.
NOTE: someone mentioned 10% to get on his schedule and the customer waits 6-8 weeks for start.
As a builder, I take the "do the job / get paid" approach with our subs, who want a downpayment or advances, noting the bus example. Most builders I know do not give downpayments or advances. The builder get paid by the bank for work completed.
We have a line item in cost for carrying charges......the cost of doing business and keeping our clients comfortable. Are you rolling $30,000.00 in and out of jobs? Charge $250.00 a month per project carrying charges, figured into the bid. $250.00 a month is simple interest on $30,000.00 @ 10% (common stock market average) and if you have two projects going your making 20% for your capitol, three projects.......
Just my way, please do not attact, I am convinced and it works. Of course I am also a hard head, old and somewhat set in my ways, but you know what they say "Old guys rule." Youngsters, your time will come.....in the meantime, how can I help you.
If I get hit by a bus and die then I have a business insurancepolicy to fund the completion of any jobs still in progress or deposits that need returned.
So if I don't take the 10% and suddenly someone decides the week before we arrive to remodel the bathroom to buy a new car instead. I am out with no way to keep that crew working for that week. With the 10% I have at least something to make payroll with. But more than that I have a commitment that most client would rather not break because they are vested in the process.
So using your method if they are a cash customer what happens if you have worked 3 weeks, 2 days away from a pay date, and they get hit by a bus? You wait for the family, attourneys, and the estate to pay you. I already have mine. DanT
I am only telling you my approach that has worked for me. All the best to ya.
I am only telling you my approach that has worked for me.
I understood that. You made specific mention of my post so I simply was clarifying my reasons and why I didn't use your method. No harm intended. DanT
To further clarify (without malice), our methods are bank protected, if we do the work, the bank technically owns the home and pays us no matter who dies. Also, the bank requires "key man" insurance. If the "key man" dies, the build-out is covered.
Typically, there are no cash customers when your in the $500,000.00 + range. A 10% down payment is $50,000.00, and may have some folks sweating until we have sometihing in the ground. Depending on project schedule and current cash flow, we sometimes take a "Mobilization" percentage, usually 1-3% for permits, port-o-potty, culvert, construction drive, soil test and foundation engineering. After this, all draws are progress payments, based on work completed.
We do move a substantial sum in and out of projects, but there is a carrying charge line (company eyes only) in our cost. If it were questioned, I believe the examine would determine it is fair. Ultimately, we do better than if this money were in a fairly safe investment.
BT is good, some of us old farts may be stuck in our ways, but if it ain't broke, don't fix it. We don't always agree, but it is good to read and get an idea of how others conduct their business. I try to think I am not hard headed and can be open. Again, I am not telling folks who take 10-30-50 upfront that they are wrong, but what has been very successful for us. Hopefully, someone can lean from me. I was born at night, but not last night (ha).
One unfortunate thing about BT is there is not the conversational advantage of facial expressions, tone of voice and gestures that tell you so much more about what a person is really saying. Statements can be easily misundrstood, expecially when there is a seeming disagreement or differing ways.
I'm cool...hope you have a blockbuster year.
Edited 3/18/2006 10:22 am ET by txlandlord
Tx, your entire approach makes sense to me.
The idea of forcing someone to pay 10% upfront on a bank financed project might not always work. I think flexilble thinking makes sense.
I can see why it is important on the smaller jobs though too.
I want to hear more about the 100 acre developement though. Shall we start a separate thread?
blue
If you get paid up front for material how do you supply lien realeases from the suppliers?Likewise what can you supply in lien releases when you get 20-30% up front.
bill.. you can't give a final lien release anyway, so you can give a conditional lien release....
the whole lien release thing is a convoluted mess.. i always try to talk my customers out of requiring itMike Smith Rhode Island : Design / Build / Repair / Restore
Don't you sign releases for the money they pay you?
blue
absolutely... at least twice in 30 years.....
Mike Smith Rhode Island : Design / Build / Repair / Restore
I know that it will be a conditional release.But I though that they would generally read something like. I knowledge payment for all work (or materials) done on 123 Main St through 2/2/2006 or something like this. So since we are talking about paid before anyting is done that release would be meaningless." i always try to talk my customers out of requiring it"So the this whole thread is that the client should not be trusted, so you want money up front.However, you don't want to even provide him with a standard business practive of telling him that all of the bills have been paid on the job.
Lien Release. We have use this form with many banks. It is due at final draw, with substantial completion.
well, bill..... my life is an open book.. or maybe it's my line of irish BS..
but no, what does trust have to do with getting a deposit from a customer..?
who owns the property ? who's in possession ? the customer
who's getting the benefits of the improvements ? the customer
who's taking most of the risk in this two-way relationship ? me
if you want to hire me , i want a deposit.. so , bill.. don't hire me
man, don't it just gall you that i've done business like this for 30 years and my rep is still intact .... hah,hah, hah...
maybe it's cause i'm a small-town boy.. who knows..
i do know this : some customers need protection from some contractors
and some contractors need protection from some customers
the cool thing is when the crooks hire the crooks..
me i just find honesty is the best policy
and don't get me wrong.. if the bank requires it of my customer, then we comply.. i just find that a lot of things are knee-jerk requirements and don't really offer the protections intended
take a lien-release .. the scumbag contactor signs it ... brings it to some notary, gets it stamped ... and hands it over
three weeks later the plumber calls up the customer and wonders why he ain't been paid yet ... the plumber never signed nothing.. but the GC did.. is the customer covered ? .... i ain't no lawyer, but i'm thinking the plumber can still lien the property and get it perfected.. and the customer can chase the GC.... but it doesn't release the lien
is it good business practise.... maybe... but dealing with honest people is better
Mike Smith Rhode Island : Design / Build / Repair / Restore
Edited 3/18/2006 3:07 pm ET by MikeSmith
"the cool thing is when the crooks hire the crooks.."U makum heap big smile here!
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"take a lien-release .. the scumbag contactor signs it ... brings it to some notary, gets it stamped ... and hands it overthree weeks later the plumber calls up the customer and wonders why he ain't been paid yet ... the plumber never signed nothing.. but the GC did.. is the customer covered ? .... i ain't no lawyer, but i'm thinking the plumber can still lien the property and get it perfected.. and the customer can chase the GC.... but it doesn't release the lien."It probably depends a lot on the individual state laws, but I suspect that in a number of them then the plumber can still collect.However, if that does happen you do have lots of lots of legal support. Sheiff Joe will be after him and the hanging judge will take care of the remains. That clearly takes it out of the area of a contract dispute and makes it clear fraud.BTW, a few years ago on another forum someone in California was talking about having a bathroom redone and would only thing of having HD do it. He claimed that in CA contractors had all of the power and the lien laws where way too easy. He jokes, but not too much, that he was afraid that the kid that cut his grass was going to put a lien on his house.Apparently he had a couple of problems in the past, but he told of one. He had a roof redone. And he had either made the check out to both the roofer and the shingle supplier or made out a separate one to the supplier (don't remember which). However, the roofer was several job behind in paying the supplier. So the supplier credit that amount to the balacne due and liened the guys house until the payments caught up to that job a couple of months later.Now I tried to convince him that was not a problem with the lien laws, but the suppier thad commited fraud and he shouldhave gone after him either directly or reported him to the state AG."my life is an open book.. my life is an open book.. "That's a good start, maybe even the finish. How about a credit report and records search (liens and lawsuits) against both parties."some customers need protection from some contractors and some contractors need protection from some customersthe cool thing is when the crooks hire the crooks.."But it is not always crooks with crooks.Like a couple of years ago some nice old lady hired someone to build a new house and paid all or a big chunk up front. He dug the foundation and had a drop of materials and then disappeared at the gambeling boats only to surface a few months later, sans cash.I wonder if there has ever been a study that about how much is "lost" on each side. Probably be hard to get a good meaningful number. Because job go bad in several ways and for several reasons. And again on both sides. From people that where just hangin on and did not see the hand writing on the hall (but should of) to people that where doign good, but ran into problems that overwhelemed them, to out right crooks. Note that in all cases there people could be the contractors or the clients.
Let em ask you a question so you can help me understand this lien release thing you seem to be arguing in favour of...somehow it is certification that all the materials and subs have been paid for so all of them should sign it, right?now, when I do a roof, I am selling them the job itself. They are buying the shingles from me. So how is it that they need my supplier to release lien? What diff does it make where I bought my supplies from? Might have been five different places.Here is where I'm going with this - If they contract with HD to do the roof, instead of me, do they need HD's supplies to sign off too? If not, why not?
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The laws vary from state to state. And there are all kinds of DIFFERENT requirements about how and when you have to or can notify the client about the potential of liening or in fact putting the lien on.But the basic thing is that in all areas that people supplying material or labor to a structure can put a lien on that structure if they aren't paid.As as been said that it is hard to repo shingles off a roof once applies.In your case of a roofing job you migth have gotten shingles from one supplier, roofing nails from another, had your employees do the actual roofing, and sub'd out copper flashing to CU.Now you get paid, but skip town. Your employee, the shingle supplier, the nail supplier, and the sub can each put on a lien for the amount that they where due.That is one of the problems with getting lien release, know that you got all of them and got them from the right people.Now I don't know the laws, so I don't know how they define a "material man" (boy I hate to start sounding like that nut that post from time to time about who is a contractor and who is laborer and the AZ contracting laws).But your business is not stocking shingles, but rather buy them for the job.AFA HD goes I would assume that they where the material supplier and they sub out the installation so you would need a release from them for the shingles and one from the sub.
Edited 3/18/2006 6:36 pm by BillHartmann
bill, i hadda laff..
<<<
Now I don't know the laws, so I don't know how they define a "material man" (boy I hate to start sounding like that nut that post from time to time about who is a contractor and who is laborer and the AZ contracting laws).>>>
that guy could always knowt my shorts.....
i run into the same thing with the chain of proof on WC....
i mean the chain like the conditional release.. the gc signs .. but the roofer doesn't .. who of course has 5 guys on the job ,... who are not employees..but are in fact Independent Contractors.. .. so, even if the roofer signs off, if he doesn't pay the "Independent Contractors " ( who do by the way, work for him , and have for the last 5 years )...
and the material man ( the roofing supply company ).. one reason the supply company has the job address on the invoice is to prove that they supplied materials to the job.. so they can perfect a lien if they are not paid..
RI's Lien laws were almost thrown out a while ago, but the legislature corrected some of the errors the courts had found
i do know that i cannot claim a Lien if i don't have a clause in my contract that says i have the right to claim a lien....
and, speaking of clauses, my understanding is that all contracts have to have the 3 day Right of Recission..
it's more fun to bang nails and cut boards than to cross the t's and dot the i's, but it sure can cost you if you don't
anyways.. back to the WC chain..
in RI , if you have one employee you have to have WC.. so as a GC , i'm responsible for getting certificates from my subs.. or they can give me a DWC-11IC which says that they have no employees and are not required to have WC, and that they are Independent Contractors.. , and this is the guy I have a contract with
now .. he also shows up with 3 other guys who i don 't have a contract with.. matter of fact they're the same guys he's been showing up with for the 10 years we've been doing business... but no way am i going to get a DWC-11IC from each of them..
and this is the dodge that most of my "competition " operates under..
so.. i guess my point is... a Lien Release is just one more piece of paper that only has meaning if you are dealing with ethical people..
kind of like the guy who left town 10 years ago with a trail of broken jobs..
i do remember his ads in the paper though, " Lifetime Warranty"..."Fully Insured"
hah ......Mike Smith Rhode Island : Design / Build / Repair / Restore
i do remember his ads in the paper though, " Lifetime Warranty"..."Fully Insured"
Typically I think that means the "lifetime" of the goldfish his kid just won at the fair and "insured" means he has renters insurance.
You bring up some good points about WC, points that I have pondered as well. I wonder if there is a real solution.
I also wonder about INS, the guy who does out flatwork is legal and insured, but who knows about his men? Does anybody have the time to worry about all of this or is that just the way it goes?
Jon Blakemore RappahannockINC.com Fredericksburg, VA
"and, speaking of clauses, my understanding is that all contracts have to have the 3 day Right of Recission."While states might have different laws the basic one on that is if you got to a person house and make a sales pitch then they have the 3 days.But if they walk into your shop with a set of plans for a house and you sign it on the spot then it is done deal.BTW, there is also a right of cancelation (I am thinking 3 days also) if you refi a house, but not for the initial mortgage.
Bill - You are right about the in person solicitation at a person's home - that's a 3 day right of recission. It does not apply to all contracts, only those solicited at home. This is a Federal law - I want to say the Magnuson - Moss Act, or something like that, but it's been a long time since I researched that so don't take my word for the citation. State law could theoretically be more strict - never saw that happen. There becomes a question of pre-emption...
As far as the refinance thing, again, you are right. There's a 3 day rule. Some banks allow you to sign a waiver and release the funds immediately. This is also probably from a federal regulation.
Don K.
EJG Homes Renovations - New Construction - Rentals
I just signed my re-fi last wednesday. It is three days.
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I know that the only value to the contractor that a lien has here is if they ever try to sell the house, the new buyers find that the deed is encuumbered, so settlemt has to happen then.I have only goine to file a lien one time - out in Colorado. I roofed a very high end house as a sub for what was then the biggest home builder in the country and then got the run-around on payment - it's in the mail, etc for a couple of months. Out there, once ninety days passes, you lose the right to filea lien, so I drove by the job to get the legal info off the permit posted out front, and mentioned to the lead carp the reason why I was doing this - that the foillowing AM I was foing to the courthouse to file a lien on the second to last day possible.I drove the forty miles home and my phone was ringing when I got there. They promised express mail check in my box the next morning. Sure enough, and it cleared too!That jhopb was not a spec, but a custom on a lot paid for by the owners. They would have hade good reason to sue the builder for allowing a lien to creep in had they already paid for the roof draw months earlier.
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But if I'm the ccontractor - just klike HD - I supply the shingles - just like HD. So they - just like me - should need to have their suppliers sign off on a lien release - just like me.
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That is getting to a fine point that I don't have any idea about. It would probably require an attorney familar with that states laws, but more important the case law on that subject.But see Blue's comment about how they handled it.And it might depend on if you "REALY" supply them are not; ie do you take possesion of the shingles. Sepcially for shingle it is very often that the first time the contractor sees them is when he opens the bundles on the roof.
Piffin, here in Michigan, suppliers have different rules than subcontractors and labor has differnt rules than all of them.
We just did a job, supplying the foundation and the lumber and the labor. We signed releases for the amount of each check given to us. The original contract stated what the services and goods were for.
Without those signed waivers, the only evidence of payment would be the check. But, that check could represent payment for something other than that job, couldn't it?
So, the check will be proof in a court of law, but the signed waiver is proof that the check is for a specific project. Additionally, because the laws are so explicit, waivers may have to be presented in a court test simply because the laws says they are required.
To answer your question directly: our lumber supplier did not have to provide waivers to the homeowner. We did have them sign them to us. We signed waivers to the homeowners as the suppliers of the lumber.
blue
"you don't want to even provide him with a standard business practive of telling him that all of the bills have been paid on the job."I don't know that that is all that standard. I've been doing this for individual owners upwards of thirty years and have only seen a lien release two or three times and that when a bank or ins co is involved.I think one thing being missed in this discussion is that there are three elements of a contract. One is the exchange of "earnest" money, without which, the contract has not been validated, and can be terminated. The details of that vary from state to state, but the principle goes all the way back into Roman law
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Pifffen -
For a contract to be valid, one of the elements is an exchange of "consideration" by both sides. Consideration can be cash or it can be something else. It can also be a "promise" without cash involvement. I promise to use you as my contractor on the job. You promise to do my job, there's mutual consideration and a valid contract (assuming other items are agreed). Cash doesn't change hands, but it's a valid contract. Earnest money is not legally required, tho' many people think it is.
Don K.
EJG Homes Renovations - New Construction - Rentals
i'll take your word on the legal part, but it only plays if the contractor is will to acceept the promise as being as good as gold.
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Well blue, I wish I could tell you that I am fat cat custom homebuilder with money to burn, but it was not too long ago that I was a framer and could load everything I owned in my pick-up truck including my dog. We built whole custom homes and did the frame and lots of other work in-house. Before that I was strickly a framer, beginning in 1971. Still love it.
I have made tremendous progress in the last 6 years including the purchase of my land. I have not had the $35,000.00 to $50,000.00 to create a land plan.
My interest was peaked right here on BT with the Master of Architecture Thesis Project post. Jennifer is an architectural student at U of Wisconsin. She needed a thesis project for her Masters. She did not want a typical project, but one that had long term community impact. I informed her of my land and that the develpment was in cooperation with a Church / Ministry where people get life help and many stay to become part of the Church. After several considerations like Habitat for Humanity and others she took our project. We are outgrowing our facitilies and hope to develope my land, building a Church Community.
Jennifer is here in Texas this weekend and thru Tuesday to look over the land, look at some developments and homes I like and get a better feel for what we are doing. She is a student, but her oversight committee, inculding her architectural / land planning employer, is full of experienced land planning people. I am getting lots of resources speaking into the project, and I think that because she is a student, I may get a primo effort, combining her need to succeed and the resources of her coversight committee.
I will keep BT informed, and may start a seperate thread when things pick-up. My land is almost paid for, and I have an investor, but have not agreed to anything.
Hey, I am shopping for a dozer to complement our two tractors and skid loader. You may find that I am out there getting dirty and doing as much of the work as I can.
Jennifer left Wisconsin with snow on the ground and flew into short sleeve weather. I had been cutting the grass before we went to pick her up. We feed her some gormet Mexican food at a real good Houston restaurant and had pancakes this AM. She is now out shopping with my wife, who has a shopping addiction. I thought this was a business trip.
GC and sub relationships are about 80% different than GC HO relationships, so what applies to one doies not apply to another
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I agree with J.D.I get a small deposit to begin the permitting and planning phase and then another for materials and the start, then progess payments thereafter.I've been fleeced anyway. People who are good at conning are going to suck you in. I don't think anyone is completely fleece-proof. Its the risk of doing business.Like others have said here, conversations with the homeowner during the initial meeting and planning will help you to get a feel for whether you are dealing with a bum or not. But oftentimes, experience is the best teacher. I've looked back at the few times I've been conned by a homeowner and can usually pinpoint where I fell short and got sucked in.People who discount the value of a carpenter's labor are red flags. "I would do it myself but..." Also, have a contract and a detailed one, don't be afraid to put down everything from change order policies to nonpayment and collection fee stipulations for overdue amounts. Those people who say, "Why all this paperwork? I don't want to sign this!" or "I'll have the contract back to you next week, can you start tomorrow?" are people who don't want to make committments in writing and thus want to be able to side step the contract somehow and leave you in the lurch.Or, "What if I buy the materials and then you start the work." Nope. We do the take-offs, we choose the materials (inconjunction with working with the homeowner's goals), we take that responsibility and control for our work. If I wanted a boss to make all my key decisions, I'd go work for someone.People who want to pick out every detail of your contract and the price of things such as dumpsters, ask you how many laborers you will hire, tell you that Uncle Larry knows plumbing so he'll do that and husband will put in the trim on the weekend...beware!Or those who want to work around a permit. "You don't need to pull a permit on this do you?" or "I don't need it to code." Run run!Or the "How much do you charge by the hour?" or "I'll pull the permit and talk to the inspector, you just do the work, ok?" No, not ok. This ain't Labor Ready and you aren't my employor or Boss-Man. In short, if a customer seems like they don't trust your judgement, then more than likely, what that really means (assuming you are a professional with good references) is that they don't regard you as a professional or more to the point; don't regard your line of work very highly. There are people who treat all people that way and they are hell to deal with.
People who discount the value of a carpenter's labor are red flags.
Bingo. If they ask you to discount your price without decreasing the scope of the job... they are taking advantage. This is an insight into their personality.
Asking for money for planning, design etc. is a good way of driving off the dead wood also.
I have run into a scoundrel once every 5 years so far. I have a killer contract, and screen them well on the phone also.
I even had a client we had done 4 jobs previously who was taking his company through bankruptcy, renoing 2 houses and was stiffing all the contractors and doing it under bankruptcy.
How did you hear about us? Is price your prime concern? (then I have 3 names of the cheapest scoundrels in the area--guys who are charging material cost--and don't have a clue).
Just doing my part to match the theives with the theives.
LGardenStructure.com~Build for the Art of it!
thanks for all of the helpful response to my OP. I'm sold on deposits now. I used to frown on them because of all of the stories of shysters running off with the little old lady's up-front money, but you'all have made a solid case for them.
I'm planning to start my own business and this is research for me. I figure that if I can set many of my business practices before I even print a business card, I can avoid some costly mistakes.
The line about deposits seams to have taken over the whole thread....so what about protecting yourself from the guy who on completion of the job writes you a check for less than the total agreed on and say's "That's what I think your work is worth." (happened to my paperhanger)
Or the guy who refuses to pay for a job on completion saying, "Go ahead, file a lien." (That contractor's lawyer told him that the lien would do him no good. I don't remember why.)
Or the guy who uses his lawyers to com up with every rediculous excuse for not paying the final bill "This isn't smooth enough, and that isn't what I expected." All just things to put off paying and forcing the little guy to cut his losses and walk.
How do you identify these dirtbag customers upfront? just by your gut? I know some of you have posted some ideas, are there any more?There are no electrons! It is all made up. Don't believe it.
Electricity is made by GREENIES.
bosn.. how do you think we came up with the ability to recognize those dirtbags ?
it's cause we've all met them ....
fool me once , shame on you
fool me twice , shame on me..
write your contract with the right clauses to protect you, but sharpen your senses of who to avoid in the first placeMike Smith Rhode Island : Design / Build / Repair / Restore
Mike, I was afraid that what you said might be the only answer that I could get, but any discussion on how we recognize the dirtbags is helpful.
ThanksThere are no electrons! It is all made up. Don't believe it.
Electricity is made by GREENIES.
Mike is right. The key is to recognize them upfront and don't work for them in the first place. Often easier said than done. The real key is communication. Both written and oral. Tell them what you are going to do and how. Write on your agreement what they will recieve for there money. Then do it. That usually minimizes the issues.
I do primarily small jobs. 1-5k. A couple times a year I might hit 20k on a job. With 3 guys and 3 trucks we see a lot of customers. Last year 102 to be exact. About once a year we hit one that you can't make happy. They didn't think it would look like that, you should have done this instead etc etc.
What can we do to make you happy is the first line. When they don't know, won't ever be the same etc. I immediately know the score. They want money. I settle it the same every time. My question is always "according to our agreement I am owed $1050.00. You write me a check for what you think it was worth and we will call it a day and be even." They him haw around and usually write it for 10 or 20% less than what is owed.
I take this approach figuring that with my system I am always trying to collect profit. So my bills are paid as far as labor and material. If this will keep them from telling the entire free world I am a crook it is a good investment. (I know, probably won't) I have had this happen 6 times in 6 years in business. It has worked everytime but one. In that case it was a nut job who thought $370 was outragous and the fact I charged her for nails and hardware while hanging her shelves, crown and finishing a set of steps was out of line. I told her to keep it after spending time talking with the BB burea. Anyway, that is my approach. I am sure others have theirs and do equally as well. DanT
whoa, dan ! that is such a realistic approach, it ought to get branded in our palms and etched on our eyeballs
settle... settle ... settle... the time you spend trying to beat a dead-beat is time you will never get back.. and you will almost always pay a lawyer more than they will ever recover...
don't work for them in the first place, goes without saying.. but once you're there .. and they hold some cards... cut your losses
make sure they sign off ... but clear out as fast as you can
Mike Smith Rhode Island : Design / Build / Repair / Restore
That really is my business personality. If trouble strikes I look to cut my losses and move on. I simply can't justify all the BS you have to go through to collect $500 or a $1000. And you are right, the attorney at that level is far to much money to make it a good decision. DanT
"I even had a client we had done 4 jobs previously who was taking his company through bankruptcy, renoing 2 houses and was stiffing all the contractors and doing it under bankruptcy."Lawrence: Sounds like the guy who stiffed me pretty good last year, we worked for him three times, oh he loved us, blah blah. THen at the final phase he calls me up, "How much to buy the sheetrock to finish this?""Pardon?" I reply. "You are due to make the next phase payment, then we'll buy the sheetrock and begin. That's what the contract reads...the contract you still haven't returned to me signed.""Oh yeah, I'll get that contact to you this week, so how much sheetrock should I buy? Can you start Monday? "See this conversation? This man had no respect whatsoever for me, our rules or our needs. My fault. I let him run over me roughshod until the end there and then I pulled up our sign, packed our tools and left on the next weekday. He screwed me good that one, but I was conned. We packed up once when he refused to sign the contract (he never liked my contracts, although always signed them, the second job he even said it 'wasn't worth the paper its printed on', so I took it to a lawyer who added some minor changes and complimented me on my work on it -- the customer thought he was going to intimidate me because he was going to law school, not so).But he got me on the third time around by delaying the signing and thus thinking he could make his own rules. I could have taken him to court, but I just don't have the time. I chalked it up as a new chapter in my Mental Book of Lessons and moved on.I think the only way you'll learn is to get out there and get burned.Hey. That would make a good song.
I learned later that this turd screwed every contractor he ever hired which leads, after conversation with seasons veterans, another thing to add:4) If there is some work already done/completed/not completed why hasn't the customer stayed with that contractor? Sure, there are deadbeats out there who rip people off, but just beware that often, like the jerk we worked for, the customer is the deadbeat. Bad people are everywhere and the best are very good at what they do.
I have no objection to anyone taking a down payment, but we do not do it. The OP wanted to know ways to avoid bad customers. A bad customer is one who doesn't make the FINAL payment. Who wouldn't make the down payment?
We manage to avoid these bad customers. (The bad customers that we have may be a royal pain in the ..., but they pay their bills.) I think that it is because we have a reputation for being expensive. I know when I give a quote to someone who I can tell is looking for a good deal, I raise the price by 30%. It is amazing how easy it is to spot these people. Our regular customers consider price a secondary consideration. They mainly want to know the price so that they can decide if the project makes sense or if they should make changes in the scope of the job to make it meet their budget.
We also try to build trust with the customer by treating them well and by extending our trust to them. We will end up in a position at the end of the job where we will be trusting them, so it makes sense to work on this at the outset of the job.
Most all of our new home construction payments go thru a bank. Do your job and get paid.
If a HO pays cash, or if it is a home equity loan in which the HO gets all or parts of the money upfront, I wonder if there is an excrow arrangement, inspected and controled by a third party. Seems there would be, but never used one.
Another vote for a down payment or deposit. I don't make a move until I have a check in hand for at least 20%. I did learn the hard way, unfortunately. After that, felt forced to teach customers the hard way (i.e., "I tried to make it as clear as possible that you don't get on my schedule until you give me a check and another job has come along in the mean time so I will get to yours on . . . .").
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
30% up front.....another 30% at the mid point of the project....30% prior to punch listing, leaving 10% for the final payment. I work with a 20% profit margin.....If I do get stiffed on the final payment, I still turn a profit.
The key is to stay ahead of the game with the payment schedule. The initial 30% typically covers either subs or supplies....sometimes both....so even if the job comes to a hault between the first and second payments, I don't owe anybody anything.
"Poor business practice" is paying for someone elses project...which is exactly what you are doing if you don't get a deposit prior to the start of the job.
J. D. Reynolds
Home Improvements
So who considers it bad business to keep your business operating with a positive cash flow?
The only customers I have ever seen who balked at a deposit were the ones who turned out to be deadbeat troublesome customers.
A deposit is one of the ways of qualifying a customer.
The doctors want money right up front or an insurance card
The bank wants a down payment
Even Amazon wants to see the colour of your money
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
A payment up front from the customer is a committment. They are less likely to happen upon someone's friend's uncle's brother-in-law who will do it cheaper right before you are ready to start the job. You put all that time and effort into the bid, contract, meetings, etc, and the rug is pulled out from under you.
Also, get money for materials as soon as possible. Up front is best, obviously. Again, you buy the materials, get ready for the job, and the BIL or someone else happens by one sunny day and bids it ridicuously low.
Once the customer has given up some cash, these problems are minimized. Then it's just time to perform and keep them happy.
Pete Duffy, Handyman
10% to hold, 33% of that on the first day to start, 33% at halfway point (usually after drywall is hung and taped), 33% upon completion....that's for remodels
for new const- ie garages, decks....I get 50% upfront, 50% when done.
all/any special orders are paid in full before I order them
the best way to feel out a customer is to slip in a "what kinda budget are you looking at for this project". That usually lets you know how much money they are prepared to spend..if you get an answer of 'I'm not sure' or something on those lines, be very leary....IMHO.
knowledge without experience is just information.... Mark Twain
http://www.cobrajem.com
I've had good luck having clients pay 100% of the materials up front and labor weekly for T&M jobs. They know that I'm expecting a check Friday afternoon and work will cease if I don't get it. The worst that will happen is I'll get stiffed for 50 hours. It's a steady check with very low risk.
Following that recipe we're booked until mid Sept.
Although it's a little uncomfortable to do, asking for down payments should be a common practice for you and your business. The down payment represents a commitment by your customer. If your customer is uncomfortable giving a down payment simply ask them why. Of the many responsiblities that contractors face while successfully running and managing a job, financing a job should not be one of them. Unless, of course, financing a job brings about some sort of extra finance charge or profit above the assumed profit from the job.
I've lost plenty of money by casually financing small jobs for customers. It was always my fault because I was either unprepared or too proud to accept downpayment. I'm still paying off credit card finance charges from materials purchased from jobs 2 years ago. It's a bad practice to get into and one that leads to poor accounting. I always ask for downpayments and I always get them happily and quickly- customers want the work done.
If the customer is uncomfortable giving a downpayment, find out why. Maybe they need to speak to your references. Maybe they got burned before. Whatever the reason, reestablish trust with the customer, get the downpayment and get to work. If the customers reasons are sketchy or unacceptable it should be a red flag- walk away from the job. If they won't pay in the beginning they might be the type of client not to pay at the end.
The method I use in my cabinet shop is this:
5% nonrefundable upon contract signing. This will secure the customer the next place in line in the schedule. It also is sufficient to reimburse me for the time I have spent measuring, sketching, meeting with the wife, meeting meeting with the kids, meeting with the dog, meeting with the decorator(no, wait, there is no amount sufficient to cover meeting with decorators), chasing down and/or making samples, etc.
28.33333%(enough to equal 1/3 up front. Carry the decimals places as far as you like.) two weeks prior to beginning construction. This is used to purchase the project specific materials. I pay for ALL materials COD. Paid invoices, according to my attorney, are a pretty good defense against materialman liens. I also get a discount from some of my suppliers for paying COD.
33.3333% before cabinet delivery and installation.
33.3333% upon installation and satisfactory completion and customer signs a release stating all work is complete and acceptable.
I have found that the primary reason small cabinet shops go out of business is because of poor cash flow and overextension of credit. That is why I do not and will not finance my customers cabinet materials. That's what banks are for.