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Questions for Contractors, Take deposits?
Ted_9
Member Posts: 1,718
My wife went to an Entrepreneurial Workshop last night and the gentleman teaching the seminar stated that if you did not have the capital to buy the equipment yourself to start the job, then he would not do business with you.
I agree with that staement only in theory.
He said he would rather pay the supplier for the parts then give the money to you, the contractor.
I dont agree with that because markup helps to keep a company healthy.
This was all in regards to getting a deposit from the customer before you start the job. He said that the first thing you need to do before you go into business is go to the bank for a loan and if you can't do that then you shouldn't be going into business.
My stance is that if you can't trust me to give me a deposit then why should I trust that you will pay me when I finish your job? That is why we sign a contract and get a deposit to cover both of us.
I just dont see how having all of our capital invested in the hope that customers will pay after the job is completed, would keep our company healthy.
I would just like to add that I dont think this is a problem for small jobs, five hundren and under. But for bigger projects, we require a deposit.
So, my question is, do you agree or disagree with this gentleman, and what is your opinion of what he is saying?
<A HREF="http://www.patriot-hvac.com/">Patriot Heating & Cooling, Inc.</A>
I agree with that staement only in theory.
He said he would rather pay the supplier for the parts then give the money to you, the contractor.
I dont agree with that because markup helps to keep a company healthy.
This was all in regards to getting a deposit from the customer before you start the job. He said that the first thing you need to do before you go into business is go to the bank for a loan and if you can't do that then you shouldn't be going into business.
My stance is that if you can't trust me to give me a deposit then why should I trust that you will pay me when I finish your job? That is why we sign a contract and get a deposit to cover both of us.
I just dont see how having all of our capital invested in the hope that customers will pay after the job is completed, would keep our company healthy.
I would just like to add that I dont think this is a problem for small jobs, five hundren and under. But for bigger projects, we require a deposit.
So, my question is, do you agree or disagree with this gentleman, and what is your opinion of what he is saying?
<A HREF="http://www.patriot-hvac.com/">Patriot Heating & Cooling, Inc.</A>
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Comments
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AGREE!!
We do the same thing, Ted. I almost always require a deposit on large jobs. Helps keep cash flow healthy, and also signifies a commitment from the client.
Starch0 -
Agree also but for entirely different reason...
If you do not have adequate working capital to do ANY job without a deposit, you're on very thin ice and so under-capitalized as to not be much of a business, in any venue.
There is a world of diffeence however between "needing" the money to pay for the materials; and wanting the money as simply a good business practice and an essential part of a well structured contract/agreement!
The fact of the matter is, if you have decent credit, you won't be paying for the materials at all until the job is finishe or well on its way to being so. I pay for materials once a month and most customers have already paid in full - with 30 days terms - before I even have to pay the wholesaler!
The greatest shortcoming of opportunities that arise in this business is failing to keep an adequate bank balance.
Every year we do the following math: See what our average monthly vendor payments are and double them. Whatever that number is - is what we need in the checking account at the end of every month. If the amount is triple - we seriously consider finding a place that earns income to invest it, or...
Go to europe for a month and drink beer and play golf (:-o)
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Since these are all custom jobs
I would not start a large job without a deposit. In another life, I owned a 14 employee printing company. The only people I would do a job for without said deposit was the county, the city or the state. All others paid a deposit up front and the balance on delivery.
I only got stiffed twice during the 4 years I owned this company. I also found it was easier for the customer to pay the final 50% or in two installments. It sure gave me peace of mind when doing a large job as I had at least covered my out of pocket expenses for that specific job.
Now the difference is I was dealing business to business. I believe it even more critical that this is done as you fellows are dealing with the general public. You have a greater potential for not getting paid in full.0 -
Ken,
I didn't mean to imply (or for you to infer:-0) that deposits are taken because of the "need" for money. I agree with you that adequate capital resources should be on hand at all times.
My remark about cash flow was more to the point that, if I'm using my cash resources to purchase equipment, why shouldn't I get it from the client up front.
You are absolutely correct that in a well managed business you will most likely not even be billed for the material you used until the client has already paid for the installation.
Just a clarification.
Starch0 -
Did yoy pay for the seminar,before or after youyheard it.
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In an ideal world...
... you would get paid in installments as the job progresses. That's how big ticket items like boats and houses are paid for (if you're the builder).
I think a deposit is a sure-fire way to lock in consumers and pay for expenses in a reasonable manner (i.e. without having to resort to trade credit and all that). The more esoteric/expensive the design, the more important it becomes... because most supply houses aren't likely to be happy taking back something they may a) not be able to sell and b) not be able to return.
Having said all that, one would like to think that there would be almost no working capital requirements outside trade credit for most contractors since they are likely to collect their accounts receivable pretty much at the same time as their accounts payable come due. But what do I know, I'm not a contractor!0 -
Touche Jamie !!
Those who can do, those who can't teach. That can be a very narrow minded statement but this guys needs to run a business in the real world.
If the customer can't have work done on his house without taking aloan from me, then maybe he should'nt be doing the job !!
I Always ask for and accept a deposit on every job.
My bank dos'nt do Plumbing and Heating, and I don't do LOANS.
Scott
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It's all about cash flow, baby!
Getting at least a 50% deposit on ANY job helps keep the cash flowing, enabling businesses to pay invoices early and get at least a 2% discount -- putting even more money into your pocket and maintaining a good relationship with your supplier.0 -
Deposits
We only ask for deposits on larger jobs.Not to help cash flow but to complete the contract.In Connecticut a contract is more binding after a signature and a deposit.
The deposits we ask for are usually a very small percentage of the total cost.We do require installment payments as the job progresses.Some of the larger jobs we are on may take months,up to a year to complete.
Most anyone building a new home is under a construction loan and their money is released as the job progresses so there is often a lag in cash flow for the builder/homeowner.
We've been fortanate enough to have a good enough cash flow to keep things rolling,but lately we've been getting into some pretty big houses with some very expensive equipment.I've been considering looking into a line of credit from my bank to help smooth things out on some of the bigger jobs.
Personally if a contractor asked me for 50% up front I'd be very leary of doing buisness with him.0 -
It all depends on the reputation of the two parties
I never had a problem with my deposit requirements as my work was all custom and therefore could only be sold to that customer. Also the larger businesses saw that we did our work as promised and kept deadlines which to many of them was a crucial element to the job.
How ever there were contractors that I would not do any work for as their reputation was that they strung out their suppliers. Who needs that kind of business.0 -
> Did yoy pay for the seminar,before or after
> youyheard it.
>
> _A
> HREF="http://www.heatinghelp.com/getListed.cfm?id=
> 289&Step=30"_To Learn More About This
> Professional, Click Here to Visit Their Ad in
> "Find A Professional"_/A_
Paid in full before the seminar. They wont let you go if you dont pay first, right.
Patriot Heating & Cooling, Inc.0 -
Jamie and Ted: You're both mistaken.
You did NOT pay for the seminar bedforehand.
You put it on plastic like everybody else and maybe paid the bill when it came in - and then again, maybe you didn't!
You can't get paid for service work beforehand - until you know what's wrong, what the parts cost, and have a method to deliver one.
A contract job is another story. We get 1/3 with returned contract; 1/3 upon delivery of the boiler and materials to the jobsite, and the final third upon passing inspection.
Whatever works for you - and the customer makes sense.
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deposit
My contract states 50% before 25% upon 75% of work completed and 25% upon completion take it or leave it. I don't want to be chasing anybody for months for 4 or 5 thousand.0 -
Like most of life's lessons, I learned the hard way!
I still have the Kohler cast iron single bowl sink with just three openings that I special ordered some 26 years ago due to there being a six week lead time for delivery. Hell, I didn't want to be the guy holding up the job progress. They did not want a spray and they were adamant about not having the extra hole. I too felt that I had to be in a cash positive position (still do BTW, but not for the same reasons) so that I didn't have a need to ask for a deposit. Although I'd only been in business for myself for just about one year, I was putting every penny back into the operation and we were living off of my wife's paycheck &, as a result, there was no need to ask them for up-front cash. Dumb move.
They decided not to remodel the kitchen the day prior to its slated start date. Refused to pay for the sink too. Choice: sue or eat the loss. The return charges were to be 50% due to this being a special order. I ate. To this day, that sink sits in our warehouse as a stark reminder that deposits are not a dirty word.
Someday I'm gonna sell that sucker! 26 years & still looking(G).
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OK Ken your splitting hairs. On big jobs only, thats what Im talking about. Not small repair work.
As for the seminar: We sent a check, and its been cashed, they have been paid in full and I have paid in full. But if I use a credit card they get paid in full and Im left to pay, A CREDIT COMPANY. Thats not the business that im in, so I dont extend it.
UNLESS; a customer goes through financing.
0 -
What color Dave
We would sell those oddballs with a Grohe or Delta pull spray faucet in the center and soap or lotion dispensors on either side. Moen used to sell that pop up kitchen faucet for single hole sinks also. Or a hw or filtered water dispensor may fit to either side of a single hole faucet.
Single bowl may be a challange. Always a good option for a garage or laundry room.
It probably has made you more money sitting there as a reminder, however, at this point
hot rod
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Price of jobs.
> We would sell those oddballs with a Grohe or
> Delta pull spray faucet in the center and soap or
> lotion dispensors on either side. Moen used to
> sell that pop up kitchen faucet for single hole
> sinks also. Or a hw or filtered water dispensor
> may fit to either side of a single hole
> faucet.
>
> Single bowl may be a challange.
> Always a good option for a garage or laundry
> room.
>
> It probably has made you more money
> sitting there as a reminder, however, at this
> point
>
> hot rod
>
> _A
> HREF="http://www.heatinghelp.com/getListed.cfm?id=
> 144&Step=30"_To Learn More About This
> Professional, Click Here to Visit Their Ad in
> "Find A Professional"_/A_
0 -
Price of jobs.
> We would sell those oddballs with a Grohe or
> Delta pull spray faucet in the center and soap or
> lotion dispensors on either side. Moen used to
> sell that pop up kitchen faucet for single hole
> sinks also. Or a hw or filtered water dispensor
> may fit to either side of a single hole
> faucet.
>
> Single bowl may be a challange.
> Always a good option for a garage or laundry
> room.
>
> It probably has made you more money
> sitting there as a reminder, however, at this
> point
>
> hot rod
>
> _A
> HREF="http://www.heatinghelp.com/getListed.cfm?id=
> 144&Step=30"_To Learn More About This
> Professional, Click Here to Visit Their Ad in
> "Find A Professional"_/A_
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Aha! Found it!!
26 years ago when I built this house of mine, I special ordered a kohler sink, and after 12 weeks of patient waiting, it still had not showed up. Well, it was moving day, so I installed a Just stainless in its place. I still have never heard what happened to that order. Now I know, it is at Behler's!!
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White, but of course....
white is a subjective color(G). Oh, I've come close with the faucets you mentioned, but every stinking time, there's a hitch.
You're right, of course, it sitting there staring at me from the dim recesses of the huge timber-framed garage, no doubt with a smirk, reminds me to be ever cautious.
If the day ever comes that I part with this nemisis, I'll likely miss the ever-constant reminder of a bad decision from the past.
But there's hope me lad, there's a litany of lousy decisions waiting in the wings to remind me of my foibles. Just as there will always be contractors who don't know their bottom line and, therefore, how much they should charge to break even.
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Price of jobs.
I think one point here is that many are talking about different priced jobs. There is of course a difference in financial issues depending on the size of the job, and the length of time to do it.
Examples:
A new home construction, which will take 6+ months, I would accept, 10% with signing of contract, 40% with majority of materials delivered to job site, 40% with completion of rough in, final 10% upon completion of job.
Boiler install which will take 1 to 2 days , 10% with contract, 40% with delivery of boiler on day of start, balance due upon completion, (usually at end of same day, or following day at latest.
Service call for repairs if it was a regular customer in good standing, net 30 days. Anyone not already established as a customer, COD.
Large commercial jobs, (of which I did many), usual AIA terms if through project management company. If for a large private owner, same as a residential whole house install, 10/40/40/10.
My experience was if they were not willing to give you something up front, they were not willing to give you the balance at the end.
I RARELY got stuck. And when I did I turned them over for collection in a heartbeat. I got the reputation of doing excellent work, but if you screwed me, God help you.
The dead beats (like birds) flock together, and they steered clear of my business.
Do a great job for a good paying customer, and his brother will call you for a boiler too (and will pay for it). Turn a dead beat over for collection, and his brother will NOT call you. Works for me.
If you do good work, don't be afraid to ask to get paid for it. You deserve the money that you EARN, using what you LEARN.
Regards,
Ed Carey0 -
deposit
EBAY dave, olive green is making a come back !!. Always a deposit and we stopped the 1/3-1/3-1/3 stuff too, lets face it, theres way to many people out there that have absolutely no intention of ever paying you...40/40/20.0 -
We accept
VISA & MasterCard(G). Let's see, with compounded interest and storage fees, that comes to......
$1,890,000.00. Don't forget the PA 6% sales tax!
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We accept
VISA & MasterCard(G). Let's see, with compounded interest and storage fees, that comes to......
$1,890,000.00. Don't forget the PA 6% sales tax!
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Guess I'm the odd man out on this subject...
We do not require a deposit in advanced. We do progressive billings. We have a line of credit, and EVERYONE pays for it via overhead.
I guess that's one of those things that makes us different than our "competitors". And we DO explain that to our customers up front.
Personally, if I trust you, I have no problem giving you a deposit. I'd prefer to have some tangibles in exchange.
There are some bad businessmen/contractors out there working hand to mouth. Your deposit is being used to pay their last material bills so they can keep their account at the local supply house open. Those are the people who hurt our industry. All it takes is one step in the wrong direction, and their history. They default on all their suppliers, and guess who gets stuck holding the bill. WE DO. The supplier can't afford to just forget it. The cost gets rolled into the overhead and we all pay for their bad business practices.
Meanwhile, Wiley Contractor starts a new business under a different name the next week. What's fair about that practice?
ME
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I'd back you in a heartbeat
on all the issues you raise.
What ever happenned to the golden rule?
Think of it as if you MOM was having the place sided - and the guy told your MOM that he wanted 50% up front?
Think again everyone. ME's got something goin' here, me thinks!
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$$$$
We always get a deposit when the contract is signed typically 500-1500$. I want some money so I know thier serious esp since with our work load the wait is typically 6-12 weeks before we start. Then a bigger deposit one week before or when our guys show up to start at the latest. If you don't want to play by my rules we don't play ball , simple as that. Sometimes it's tough to keep on top of though with everything that's going on each day. Wouldn't you know the customers that slide through the cracks are the ones that become the problem!!! We put in a system for about 7k in July somehow they got through with only paying a 500$ deposit at contract signing and we haven't gotten a penny since grrrrrr. A pain, but that contract also says 1.5% per month or 18% a year which i supose is better than any banks going to give us and we will collect, if not "Here come da Judge!"0 -
Deposits, always
And sometimes the customer pays 100% upfront ! Their choice, not mine, that usually jinxes part of the job I've even given back checks with instructions to write one for the proper and specified deposit amount.
I pay for the material when it's delivered, so I should have a deposit to do so. Paying for it upon delivery does for me what Dave's Kohler sink does for him it forces me to not be too generous with MY money.
Go ahead and tell me more about how not running a credit account at the supply house makes me a bad businessman and a detriment to the trade. I'm usually so liquid I could virtually be poured into a bottle
If the customers were to buy the equipment and we were all just hired labor/installers, wouldn't they have to pay for it when they left the store ?0 -
you should install it in your house!! lol0 -
Nothing malicious intended...
by my comment about using warehouses. Most everyone I know does, myself included. Its the people that don't pay their bills that gets my dander up.
ME
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Ted...if you do not know the guy...
you could do like me. if i dont know the person i wont work for them unless they pay me first...after all why waste my time and money even on a gamble? someone i know or maybe someone who has worked for a contractor and knows hes on the up and up...i have no problem with. if like you say the contract is near my available cash well..i am not in with out the dollars up front. help some young guy with a family fix the boiler some vet install awater heater help some old timer dial in the heat and fix a leak...no problem God is the greatest giver.0 -
Deposits
I know this is a touchy subject, but we require a 50% deposit on a boiler replacements and take a 25-30% deposit in advance of any radiant project with progress payments. This reserves the time slot, increases cash flow, pays for mobilization and design time, etc. When there is demand for services, you can ask for the money. Banks only loan money when you don't need it. Small contractors need to pay special attention to cash flow. Many times, the small contractor finances the homeowner by not collecting the right amount at the right time.
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plus
They give us a nice discount every month for paying on time. Using them and getting a material deposit let's us earn interest plus take our discount. Win/win.
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I get the discount
I'm ALWAYS paid up by the 10th My numbers add up the same and I get the 2% immediately. If I have a warranty issue I put it on the MC until the credit is issued. I have very few return to stock instances which they like too. I get my share of referrals from the suppliers, so I guess they must be comfortable with my stability.
I'm not especially offended, I've heard and debated this before. Just presenting my position.0 -
Deposits
I sell appliances on the Island of Long - had a customer (real estate agent wife/contractor husband) tell me that a cabinet supplier ran off with a $5000 deposit - approx 1/3 of the cost of cabinets - and then expected a huge discount from me because they were bilked!!0 -
Thank you for all of the great comments/stories.
We agree with almost everyone.
and thats for taking the time to comment.0
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