[Grainywood]

How many of us have been stiffed by a homeowner who refuses to pay?

I just got stiffed by a homeowner who apparently loves my work but keeps putting off paying. She is either "out of town" or never available.

My wife called her under a restricted number finally and surprise, the client answers the phone. But then hung up saying "hold on, I'll get [the client]" acting like she was someone else.

Then I started wondering why our industry doesn't use an escrow service for contracted work. It isn't illegal as far as I can tell. I've called several escrow services around and they say they can do it for about 2% of the contracted amount. Small price to pay to be assured the money is there at job completion. And the hardest part of parting a homeowner with his or her money has already been done at the start of a job. All they have to do is okay the work to release funds. Sure it isn't a cure all for the whiney customer who always has a reason to hold funds but it would eliminate the ones who don't have the funds to pay but hire us anyway or just don't want to pay.

There is no incentive right now for shady homeowners to pay. They gamble with whether we have the time or inclination to go to battle for our money and in the end if they lose, they only pay what they owe anyway. And if we give up, they get off scott free.

Mechanic's liens, small claims courts; they are all so lengthy not to mention expensive when you take into account time lost on the job.

We contractors are left out to dry. All the protection by the law is for the consumer. But what about the small independent contractors who really are working hard and doing a good job?

If it became industry standard to put fees into escrow, wouldn't it make life easier not only for us contractors but for homeowners as well? Homeowners would still have the final say in whether the work is acceptable and contractors would be able to go into a job knowing the money is there.

Can anyone here give any other suggestions? And if this sounds like a good idea, pass it on.

 

[Mike Finley]

Unless you are doing 1 or 2 day jobs I have found the easiest way to ensure you get paid is to divide your bill into progress payments listed in plain english on the contract.

20% $2590.20 due at demolition
20% $2590.20 due at installation of cabinets
10% $1230.10 due at electrical inspection
...


Change orders are due at time of completion, they don't get tacked onto the end of the bill.

If there is going to be a problem with the customer you will probably know about it by the first payment.

I try to only leave 5-10% due at the completion so that it isn't worth it for the customer to blow the final bill off.

I wouldn't be interested in paying 2% of the gross bill which really equates to 5% of the net profit.

 

[K2]

I think it is a great idea. When I was contracting I would insist that if the owner didn't have to borrow the money for his project that he would put the money into a construction loan account anyway which would be supervised by a construction lender, (I didn't know there were escrow holders). I think things have gotten worse with the "Walmart mentality" where you can buy something, use it for 2 weeks, decide you really didn't want it, box it back up, and return it to Walmart for a full refund. People start thinking all businesses can operate that way. I think your idea is long overdue and would be really helpful for people with cash flow problems. A guy might not mind diving into something if he knew for sure the check would be there at completion. :Thumbs: RT


"Just when I thought I knew everything"

 

[Grainywood]

Unless you are doing 1 or 2 day jobs I have found the easiest way to ensure you get paid is to divide your bill into progress payments listed in plain english on the contract.

20% $2590.20 due at demolition
20% $2590.20 due at installation of cabinets
10% $1230.10 due at electrical inspection
...

In our business there are often 1 or 2 day jobs. Small jobs but they can be worth anywhere from $1500 to $3000 not including materials. (We always collect materials cost upfront.)You're in and out so progress payments aren't always feasible. And the down payment can only be 10% and no more then $1000.

Progress payments work far better for larger jobs and frankly I don't have problems collecting on those as much as the smaller ones. But a few thousand here and there can break you if they aren't being paid on time.

I'd pay a $50 escrow fee to make sure the $1500 was there to pay me at the end of a couple of days rather then have to wait three or four weeks sometimes to get the homeowner to pay me.

Frankly the escrow service makes sense to me. It goes a long way to balance the contractor-client relationship. As it stands, homeowners can have far too much power over the contractor. And the type of service we provide isn't exactly retractable making the loss that much more acute. And the whole merit based collection of payment from homeowners is an outdated method for a business model.

We are dealing with large numbers of clients whom we don't know and will probably never see again. There is too much anonymity today for such an intimate way of doing business. Trust takes time to earn. And the legal ramblings of any contract demonstrates the level of "trust" that really exists. So why would we expect so much trust with payments of money owed?

It seems an outdated business model based on small town affiliations and good faith, not current realities. No one is saying it doesn't exist, but given the nature of our business which is to install or construction a commodity that is permanent and unreturnable into people's homes, it seems foolish not to have some formal arrangement for timely payment other then trust.

 

[ProWallGuy]

I'd pay a $50 escrow fee to make sure the $1500 was there to pay me at the end of a couple of days rather then have to wait three or four weeks sometimes to get the homeowner to pay me.

commercial gigs are one thing, but if you are waiting on Suzy Homeowner for 3-4 weeks, your contract is lacking good payment terms.

Ripped from mine, and it works like a charm:


JOB DURATION: Approx. men, days

PAYMENT SCHEDULE: A DEPOSIT OF 1/3 TOTAL PRICE DUE UPON SIGNING OF AGREEMENT: $
A DRAW AGAINST REMAINING BALANCE (NOT TO EXCEED 1/3 OF TOTAL PRICE) DUE AFTER 7 WORKING DAYS: $
REMAINING BALANCE DUE BY THE END OF BUSINESS ON THE DAY OF COMPLETION: $

LEGAL NOTICE: UNLESS OTHERWISE AGREED TO IN WRITING PRIOR TO START UP OF WORK: PAYMENTS RECEIVED LATER THAN 72 HOURS FROM COMPLETION OR STOPPED WORK DATE TO BE CHARGED A $50.00 LATE FEE, AND ADDED TO BALANCE DUE. ALL BALANCES DUE, AFTER THIRTY (30) DAYS TO BE LEVIED A SERVICE CHARGE OF 1.5% PER MONTH AND ADDED TO BALANCE TOTAL. PLEASE PAY PROMPTLY. WE ADHERE TO MISSOURI LIEN LAW STATUTES AND PROCEDURES. THE UNDERSIGNED AGREE THAT EXCLUSIVE VENUE AND JURISDICTION OF ANY ACTION SHALL BE St. Louis County, Missouri. THE UNDERSIGNED WILL BE RESPONSIBLE FOR THE COSTS OF COLLECTION OF ANY UNPAID BALANCE, INCLUDING A REASONABLE ATTORNEYS FEE.