Commercial Contract No $ Up Front + 30 Net?

Thundercow

Hey everyone,

I don't post here much, but a question came up recently. My partner and I run a concrete coatings business. Until now, it's been mostly residential. Payment by residential customers is 1/2 up front, 1/2 on completion. We've done 100 jobs and never a problem.

We want to break into commercial work. This business wants a floor coating but the only terms they will accept is zero money up front and payment 30 days after completion. The job is about $3000. We were not the low bid and not the high bid. They were really polite about it (which makes me nervous) but they simply say, "if you can't do it according to those terms, we'll be disappointed and we'll have to hire someone else."

1. Is this a standard payment/contract arrangement in commercial contracting? It feels sort of wrong to me.

I'd love to hear from anyone that knows if this is industry standard stuff, or if we are just getting duped because we don't know the commercial side of the industry very well.

Thanks!

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CF Construction

...this is pretty common, at least in the majority of our commercial projects, especially if it's a large corporation. Usually, they have a certain date where their bookkeeping department writes checks out for expenses such as construction. Taking a project like this, you have to keep that in mind. At times, the facility manager, or the person in charge of hiring you can sometime expedite the payment request, but for the most part you'll wait the 30 days. Make sure to include all your proper documentation to them (i.e. license and liability info) as well as any additional information they may request to avoid delaying your payment.

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Thundercow

Ehh! That's what I was afraid of.

I just can't see them actually paying. There was this article in business week about how the "Credit Manager's Index"--which is a metric much like the consumer price index, which measures the aggregate lateness of credit accounts nationally, is reported to have reach an all time low. In other words, companies aren't paying their bills!

Thanks for the insight

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CF Construction

....is this a large company/corporation? If so, most likely they'll pay with no problem as long as the work was done efficiently and in a timely-manner. If it plays outs being a bad experience, you can always pull a lien on their property. No one likes having liens on their property, especially companies.

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Thundercow

They are small to medium.

We really want the work, as it will get our foot in the door for commercial coatings, which is an underserved market.

Heck, we can always pull a D&B on them...

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Aggie67

Not to persuade you one way or another, but commercial clients can and will change payment terms on you. We've had 3 clients go from net 30 to net 90, and that was after the PO's were cut and we were working. We do get relief in the form of a financing fee (it's in all of our proposals, because we've been through it before), but that doesn't help you get paid quicker.

Also, we have had success in getting coin up front, but usually for boilers and big ticket items, and even then we can only bill the day the purchase order is cut. We usually get the payment right around the time the equipment shows up.

For a small floor job, I personally wouldn't have an issue. But you have pay attention to cash flow. Cash is king. And make sure you get a written purchase order. Don't take verbals. Also if changes come up, document them daily and have your contact sign to indicate that they are aware there is a change and that they'll be getting billed for it.

Thundercow

Good idea...I need to put financing terms in the agreement. I was just saying to my partner the other day that "we are financing their business" under this agreement. We really are because we are essentially lending them the money to complete this work.

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Aggie67

That's exactly right. You become the bank of "fill-in-the-blank". You have to be careful, and protect yourself. We also have boiler plate lien language in our proposals. If they don't pay, we go after them.

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DQM

The commercial work ive done no money up front. Have even tryed to get partial payout at 50% most have there own payout system sometimes ive waited 30 days and up to 90 days. leans are good buy ive learned dont matter what you have in contract if they are going to bone you they are going to bone you. That contract dont mean nothing to them. I would find some contractors that have dont resent work for them and ask how they pay ( slow?/fast? or not at all)
ooh and all commercial companys Ive worked for have had there own contracts for me to go over and tweak and sign

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GregS

If they are looking for credit, send them a credit application asking all the details you would need in order to collect if it came to a problem.

One company I was dealing with insisted on 90-day terms. I declined. The next trade they tried to hire sent them a credit application asking for names and addresses of principals and such.. This was a $30 billion dollar corporation.

Cash is king. If you want credit, be prepared to pay for that PRIVILEDGE. Even credti card companies are upping their rates these days.

Stone Mountain

I no longer do anything on "terms". Last year I did 2 $50,000 jobs and got deposits and progress payments on both.
My major chain link supplier does jobs as large as $250,000 and will not start unless they get a deposit and progress payments. My brother does offices and high end commerical and residential renos. Alwasy with deposits.

For $3000, seems like a small amount. What will it do to you if they don't pay? Can you afford to gamble?
Do as mentioned: a credit app. If they refuse, you're smart to walk away.

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Bob Kovacs

Welcome to the commercial contracting world. If you want to play in that arena, you've got to have the ability to wait for your $$- and 30 days would be great in most cases- 60 is more likely. If you can't afford to float the $$, get a line of credit, and factor the cost of the interest/carry into your bids.

TxElectrician

For commercial accts, offer a 2% discount for 10 days, net 30. Figure it in your pricing. If they pay and take the discount, fine. If not, a little extra for your trouble. Many large corps. will take the discount.

rbsremodeling

Listen to Stone on this get a deposit and progress payments

I don't care if its my Mama. Some one is writing me a check up front and progress payments. I have never stiffed a client. I have written checks or given people back their money a few times.

Last year I got stiffed for over 150K. I don't care if its you mammy get a damn check up front.


I know some of you are hurting and the work looks appealing, if you have never listen to anything I have told anyone on this board never let your money get ahead of you ever. never ever.


never never ever never ever never never ever.

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Mike Finley

Commericial is a lot different then dealing with a contractor or a homeowner. It's cold, impartial and like dealing with a machine.

They have a system that is hard to change, especially for one person. Think of working for a big bank and the last 1000 jobs you hired you did it according to a set system you have in place which is no cash up front and payment in 30 days. Now, how difficult is it going to be to suddenly have to change that process for one person? Get approval for a deposit... work out progress payments.... deal with the payments have somebody from accounting set this all up and manage it...they are going to look at that amount of work and say F*&K it! It's not worth it... there are a ton of other providers who will do the work and I won't have to go through all this brain damage to work with them.

That how it works, nothing personal. In fact that's what it is, you're dealing with an impersonal entity that has about zero flexibility.

rbsremodeling

I have never understood why the average guy would ever do commercial construction for the minimal reward it affords the average company.

Very few firms make decent money on commercial work.

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Ed the Roofer

All of the commercial work I used to do had an increaed margin to level the hurt from having to wait 45-60 days usually.

30 days does not usually mean from the time of your invoice, but typically from their cut-off period.

Example:
Cut-off date is the 25th of the month.

You invoice on the 28th.

It doesn't even go through the channels until the next months 25th, so 30 can really mean 60 instead.

Ed

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BKFranks

Many large corps will take the discount and still pay late. My wife works for Black and Decker as a financial analyst and deals with Lowes and Home Depot all the time. The routinely pay after the discounted period, but still take the discounts. B&D has to hire charge-back coordinators just to sort out all the discrepancies and fight to get them to pay. Most of the times these companies are so large they don't want to upset them and just let them have the discount.

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72chevy4x4

I got hooked up with some commercial work and bill accordingly. rates went up as soon as I took them on to account for added insurance requiremnets & carrying costs. Just got done writing a check out for finance charges for the last set of doors I installed for them because payment was delayed.

Ed's got it right-pay attention to the cutoff date-get it in on time or you'll end up waiting.

Ed the Roofer

99% of all GC's would never ever pay you your finance charge.

Have the clause in your contract anyways, but don't count on it, plus an attorney fees and collection costs clause.

Automatically Lien any job that hits 45-60 days, just to cover your azz.

Ed

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