An Unexpected Case For Taking Payments Before Rather Than After Work Completed - Business - Contractor Talk

An Unexpected Case For Taking Payments Before Rather Than After Work Completed

 
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Old 01-30-2019, 08:43 PM   #1
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An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Until this year, I've taken progress payments "upon substantial completion" of construction phases. I've never been skunked. I also liked it because I always had more money coming in than was shown in my bank balance.

I finally decided to change to "before start of" XX phase for the draw schedule.

Strangely, this seems to make clients happier. With my previous method, the project would be nearly done, but with a few phases not quite complete, they still owe me a large chunk of money, and feel like they are paying a lot for a small amount of finish work.

Now, it's the other way around. They are nearly done paying, and they get to watch all the fun pretty finish work get completed seemingly for free.
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Old 01-31-2019, 12:06 PM   #2
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Just be glad you don't live in California apparently...

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Old 01-31-2019, 12:10 PM   #3
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


IMO, it's a good way to go if allowed where you are.
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Old 01-31-2019, 05:03 PM   #4
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


This is what a solid reputation buys you. You dictate terms.
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Old 02-01-2019, 08:19 AM   #5
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


I have been working this way since the get-go.

Yes, there is a state law you allowed to take 10% as a downpayment... Which is fine, so you structure your language in your contract something like this: Let's say the job total is $2800.00
So your contract will say Down payment at the signing of the contract (10%) $280.00 + partial material cost of $600, total payment at the signing of the contract in the amount of $880 dollars.
You meet the law and it puts you ahead of the game and everything is legit.
This is your business and nobody can tell you by which rules you must operate... Only you know that to be successful.

That said this will only work if you stand by your reputation and deliver what promised and do the job to complete customer satisfaction.
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Old 02-01-2019, 08:44 AM   #6
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Reputation is definitely important. I'm working for average middle class people doing the most expensive thing they've ever done, sometimes including buying their house originally. I would understand if they'd be cautious about money.
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Old 02-01-2019, 09:18 AM   #7
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


People are more cautious if they aren't sure they can trust you.

IMO, it's something every legit operation can learn from the con men.
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Old 02-01-2019, 07:46 PM   #8
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Single proprietorships in the USA might have Pay taxes(and or Payroll Taxes) on 'early' income, and then seek to have the "overpayments" returned next tax period under strict enforcement of the Tax Regs, especially if your required to make monthly tax payments....


Yet another reason to form a corporation or LLC.

I want the pre-paid funds needed to purchase labor and materials in a separate escrow account for bookkeeping clarity.
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Old 02-04-2019, 10:56 AM   #9
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Anytime you can get some money upfront, you should. May as well be working with their money rather than yours.
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Old 02-04-2019, 03:59 PM   #10
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Quote:
Originally Posted by Fouthgeneration View Post

I want the pre-paid funds needed to purchase labor and materials in a separate escrow account for bookkeeping clarity.
It's preferable to follow gaap.
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Old 02-04-2019, 05:36 PM   #11
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


I'm just old school. Do the work, then get paid. But I was able to change.
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Old 02-05-2019, 07:23 AM   #12
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Usually I collect after certain goals are completed. Now that you mention it, I have had several jobs, in the last couple years, that I have collected ahead of time. Didn't really occur to me, at the time.
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Old 02-05-2019, 07:45 AM   #13
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Quote:
Originally Posted by Golden view View Post
I'm just old school. Do the work, then get paid. But I was able to change.
I hear you... Most of us are, but times change and people change with generations.
We use to do everything on the hand-shake and never had an issue. Today with a 20-page contract with all the clause in it some still trying to skip on the last payment or screw a contractor one issue or another even if there are no issues.

Sad but it's the reality.
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Old 02-05-2019, 04:00 PM   #14
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


Great feedback. Customers feel better about writing a check when they are in a buying mood. They are pumped and ready to get things started. That same check is just a buzz kill at the end of the project.
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Old 02-05-2019, 06:27 PM   #15
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


HDAVIS: @ 10: Maybe "restricted" funds instead of "escrow"?


The main Idea is not to mentally merge funds for finishing a Job with unencumbered funds that can be spent as you please without creating a debt.

In masonry work I'd buy all the special materials needed, take ownership, locally store in an insured fenced space, and bill the next pay period, rinse and repeat till job complete.

Many contractors fail to pay themselves a fair market rate for their capital funds tied up(borrowed) to finish contracts .... inflating their ROI artificially.
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Old 02-06-2019, 08:44 PM   #16
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Re: An Unexpected Case For Taking Payments Before Rather Than After Work Completed


I'm just a small one man operation but I always collect materials and 25 percent labor to get on my schedule and 50% additional labor due upon 1st day of job. Change orders are paid in full upon approval.

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