Materials Cost Up Front

pre-reno

i have had customers want to pay for materials up front and pay for labor when job is complete this is good for me i am a one man opperation and i dont have any out of pocket expences i have done this in the past and it works well but i always wonder if this is a good business practice if anyone can give me some advice i would appreciate it thans in advance

Tileworks

For residential remodeling jobs that are expensive or will at least take about a week or more to complete, I will request the materials portion of the estimate for a down payment.

For a home builder that I trust, I'll invoice materials immediately, but will begin work even though I haven't received payment yet.

- Bob

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Classic Tileworks
http://www.classictileworks.com
Ohio Tile and Stone Installation Contractor in the Akron area serving Summit, Portage, Medina, Stark, & Cuyahoga counties in Northeast Ohio

K_Tile

Simple Answer...

We are not a bank.

Work from the customer's pocketbook. Once the materials arrive on the jobsite they become the property of the homeowner. If you ever have a dispute you have the materials covered.

Murphy

Dont start a job unless they are good customers until you have half your job cost up front. My formula is 25 to get on the calender 25 when materials arrive 25 when drywall is up and 25 when done. It may be kosher at the begining but wait until you work for a lawyer. Or just someone that got screwed by a contractor in the past, most folks lump us all together, and won't hesitate to screw you because they got screwed by one of us.
Someone here once said "treat your customers like familiy but write your contracts like everyone is out to screw you".
Sage advice if you ask me.
Just my 2 cents.

doubleaction

When we do a roof or siding we will either mark materials up and get the money up front or have the HO pay COD. Its rare for us that the home owner to do cod they usually will cut us a check for materials. On remodes we do 40%-40%-20% hope that makes sense i am tired and cant think.

Danahy

1-2 day job = 100 at end
3 day jobs to a week = 30/70
week or more = 30 of total deposit, and remaining 70% of each area I complete at end of each week due Friday's.

Richard

Small and quick jobs I'll only get materials up front and fly to get it done

Medium to Large jobs I will always get materials and a partial payment up front, followed by progress payments each week. Forget the actual numbers here.....

example...labor cost=$2000
material cost=$300

I'll get $400 for labor and $300 for materials up front. An $800 progress payment at the end of the first week or so, and then $800 when I'm finished.

I always spell it out exactly how I want things in the contract...this includes how I get paid to the T.

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Rich

Dirtguy

I wish I could get that kind of arrangement on our commercial projects. Typically, we start a job and invoice on the 25th of the month and don't collect until about the 25th of the following month. On top of that they hold 10% retainage until the entire job is 100% complete. This really sucks for us since we are typically the first contractor to hit the job. In some instances we can collect a portion of the retainage when we are over 50% complete, but not very often. The first mobilization of a typical site job for us will take about 4 to 6 weeks for clearing, mass grading and building pads then we remobilize close to the end of the project to install flexbase at the parking and drives, backfill curbs, fine grade and pave. However, a time span of several months usually takes place between these mobilizations while the building is being built. As you can imagine this creates a cashflow problem and we have to keep a constant eye on our cashflow out 4 to 8 weeks into the future.

Mike Finley

I'm real curious why the attitude along the lines of "I'm not a bank", or "Don't finance a customers project" is so prevalent in contracting? Believe me, I'm not complaining, I love it, it makes it so easy to set yourself apart in this business from your competition. But where does this come from? I can't think of other businesses that operate with this attitude and especially with such conviction to it, it's almost like a call to arms or something for some guys.

I'm not saying to not do it, but have you ever thought about how customers regard this attitude? It isn't a favorable thing I can assure you, and lots of companies have figured it out and use it against their competitors.

If you really think about it, you have an impregnable defense against being taken advantage of in business with a unbeatable 1-2 knock out combination punch of your good common sense and an iron clad contract. If you've been around for long your common sense or 'gut' steers most of us clear of the problem people and a good solid contract will protect you and keep the few that get by inline, to the point where I really have to wonder what guys are so worried about when it comes to paying for materials up front.

I really suspect it is more about cash flow or lack of it and the rest is just posturing and preening like proud peacocks.

Tell me I'm wrong about this?

john elliott

Best contract in the world still has to be enforced through court action, and that will always take some time, maybe a lot of time.
Secondly, contracts always have two sides- the work to be done and the money to be paid.
All they have to do is claim that the work either hasn't been done or hasn't been done correctly and the legal process may go the wrong way and could end up costing the contractor more money on top of what he doesn't get from the customer

So yes, you are wrong

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Richard

Your not wrong, everyone is different is all. Some are new, some are dinosaurs with a big savings account....some do residential, some do commercial...some have employees, some dont....you do it your way, others do it their way....

oh, and "I'm not a bank" is an expression...I'm sure contractors dont actually say that to HO's....

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Rich

Mike Finley

So you are saying that for you one bad customer welching on payment will break you and send you into bankruptcy?

Anyone else?

PressurePros

Mike, I agree with you 100%. I take nothing to book a job. Customers are very weary of contractors (unfortunately, rightfully so). I get material cost and 1/3 of the projected labor coast after the first day of work, no exceptions. At that point the customer sees the materials on the jobsite, sees the work quality and feels much more assured they aren't going to get ripped off.

I also use this practice as a selling tool against my competition. If a company is well established with a great reputation, it doesn't really hurt them. But a newer company, or a lowballer with limited capital and no reputation that has to take deposits to fund the job it all but eliminates.

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Ken Fenner
Pressure Washing PA
Roof Cleaning Services PA

Stone Mountain

For all of us, cash flow is a constant problem.
Although I'm not a big company, during the season I run 11-12 crews, and some Fridays my payroll is $25,000.00. I have a line of credit, but it can only stretch so far, and when you have $100,000 plus in progress, cash flow becomes very important.

I always ask for a 30% payment up front. If the job is $10,000 or more, I ask for a further 30% 1/2 way through. (Usually, in the press of business, we forget that). Then Full payment within 5 days of completion. If I don't get full payment within that time frame, I void the warranty.

When it's a commerical job, you usually have to invoice by the 25th of the month, with payment on the 30'th of the month following, which usually winds up being around the 5th of the NEXT month. That's why we tend to stay away from too much commercial work. (I've gotten stung badly in the past)

Sometimes, a customer is reluctant to give a deposit, so I ask for a dollar. The exchange of actual money makes it a legal and binding contract. Then they give me 30% when we start the job.
Being able to take credit cards makes the collectiosn much easier.

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Residential Deck Specialist: Vist our Website
www.fenceanddeck.ca

Stone Mountain

Good thoughts. In my previous post I mention taking $1 for a deposit. I do that for exactly these reasons, to show that I'm not a fly by nighter. Oddly, when given that option, most people insist on giving me a full deposit anyway.

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Residential Deck Specialist: Vist our Website
www.fenceanddeck.ca

pre-reno

thanks guys for the info its apprecated

Glasshousebltr

Mikey Mikey Mikey.......On this one I have to differ with ya..... Cash tells the truth ......money talks...... BS walks ......all those good cliche's are there for a reason. Even if I was billionaire I'd require the deposit.

If a HO doesn't trust me with a deposit.... then why the hell would he trust me with his house?...... unless of course ... he was of unstable character.

Bob

Bob

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Bob

john elliott

I'm not sayingthat at all. If you want to know what I'm saying, then read my post! That is what I'm saying.
Also, what I am saying is that you don't have an effective argument against it.
Just to remind you, my point is that no matter how good a contract it will not protect a contractor from severe problems if a customer decides not to pay

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Bone Saw

• 1/3 (deposit/1st draw) required to begin, and up to completion of footings.

• 1/3(2nd draw) required upon completion of footings up to completion of scope of work.

• Balance due upon final twp inspection.

for jobs > 20k

• 60% to start and finish

• Balance due upon final twp inspection.

for jobs < 20k

at any given time surely I could afford to provide 100% financing for several projects but don't out of principle not out of arrogance or pride, but simply because as a marketing tool, the last thing I want is to be swamped with customers that need financing. At that point, its just a job for me. For me to maintain my lifestyle, minimum volume/maximum margine is the only thing that works for me.

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Custom Decks & Carpentry LLC.
Chester County Custom Decks
Custom Deckbuilder Mainline
Philadelphia Deck Builder
Custom Decks & Carpentry on Facebook

RYANINMICHIGAN

[QUOTE= minimum volume/maximum margine is the only thing that works for me.[/QUOTE]

Exactly. For me usually 50% down 50% upon completion. Can I afford 0 down? sure, but I am not going to there is no reason to burden my self with that expense if I do not have to.. I try to stick with clients that have cash. I want to make I want to make as much money as possible doing as little as possible