Deposit or not?

[curt swartz]

I would never give a homeowner a large sum of money for doing nothing.


And, doing nothing? There is easily an hours work in a simple estimate.

I drove to your job site, talked with you about your needs and provided informed professional suggestions. Then, from my office, I wrote up a proposal, had someone put it in the system and emailed you a copy. I might have even spent some time on the phone or on site with a POCO rep. Then, if you hired me, I purchased your materials and scheduled the crew. That is not doing nothing.

You want me to do some work? Give me a deposit and I will get the materials and put you on the schedule.


I'm never behind on bills and I generally collect a deposit.

I collect a sizable deposit simply to help protect my interests. If I did a service change and the customer didn't pay me, I'd be out $2-3K. It would cost me at least hundreds more to TRY and collect it. If a bankruptcy were involved, I'd see nothing. With a 50% deposit, I will at least get something.

The 10% deposit wouldn't come close to covering materials on anything but a service call type job.
Hell, sometimes it wouldn't even cover the permit fees.

What if the homeowner gets 3 bids on a project and doesn't give you the job? You still require them to pay you 50% of the project for your time for prepare the estimate? Estimating time is a cost to you but it is part of your overhead. I sure hope that it doesn't cost you $5,000 to bid a $10,000 project

Other than the time you spent on the estimate you are not out anything. I don't see why anyone would want to hand 50% of a project over to someone that may take their money and disappear. It is much easier for a contractor to take action against the property they it is for a homeowner to take action against some contractor that probably has nothing.

If there is special order material involved then that is a different matter and I understand they need to cover that expense. If the job falls through you are stuck with it. As far as other material for the job you can ask for progress payments a you bring the material and perform the work. My suppliers give me 30+ days to pay for anything i buy so I'm not acting as a bank since I'm not using my cash.

 

[GoldDigger]

What if the homeowner gets 3 bids on a project and doesn't give you the job? You still require them to pay you 50% of the project for your time for prepare the estimate? Estimating time is a cost to you but it is part of your overhead. I sure hope that it doesn't cost you $5,000 to bid a $10,000 project

No, but if you only win 10% of the jobs you bid, your overhead gets really high (and maybe you don't win many bids as a result.) :angel:

 

[Fulthrotl]

If this is true, it is...... insane. I am supposed to fund your project? I'm a contractor, not a bank.

50% here, with exceptions.

yeah, it is truly insane, but it's california law.

in the next month, i'm probably gonna order
above $50k worth of pipe, wire and switchgear
for octobers work. i can assure you i'm not gonna
carry that until the job is done. i'll invoice as soon
as the order is placed, and have payment in full before
delivery. smooths out the cash flow.

 

[nhfire77]

Cash flow is critical as others have mentioned. Many jobs I do under $10000 could take 90-120 days to close out. Deposits/intermediate draws are a must.

I have one customer that requires net 45, but average payments of 65 days. (cash flow issues!) They are billed higher rates than my average customers, in anticipation of interest. They won't pay interest for late charges. Sending them to collections is a losing proposition. I'm essentially financing them. Albeit only a small amount it's more money overall.

If, you have a solid payment track with a good customer, you can let this slide.... For small jobs only. It appears you have to be super creative with accounting, or sit on a large amount of cash and excellent credit to do jobs in CA.

 

[Rewire]

I went to Wal Mart and asked if I could take a flat screen TV home and connect it then send them a check. Would you believe they told me no. They wanted FULL payment before I could even take it home. That is outrageous that they want full payment before the TV is mounted and working.

 

[Sierrasparky]

yeah, it is truly insane, but it's california law.

in the next month, i'm probably gonna order
above $50k worth of pipe, wire and switchgear
for octobers work. i can assure you i'm not gonna
carry that until the job is done. i'll invoice as soon
as the order is placed, and have payment in full before
delivery. smooths out the cash flow.

I guess I should have clarified the CA law.
THe 10% rule is for Residential Home improvement ( remodel to Existing property)
so 10% or max 1k down.
No money upfront for special orders other than the original deposit.
Yes you and the supply house become the bank. The Contractors License board is aware of this and expects you have the credit with the supply house. You can collect payment at the time the material is delivered to the site. The payment cannot be greater than the cost of the material plus resonable profit on them. Payments can never get ahead of actual work. Any violation if this and the owner has you over the barrel if they make a claim.

Pretty draconian

 

[curt swartz]

I went to Wal Mart and asked if I could take a flat screen TV home and connect it then send them a check. Would you believe they told me no. They wanted FULL payment before I could even take it home. That is outrageous that they want full payment before the TV is mounted and working.

You have the TV in your possession so your traded your money for a product. That is a fair trade. If you ask a homeowners for a $5,000 deposit for a $10,000 project when the contract is signed what to they have for their money other than a piece of paper. You drive off in your truck and they have to hope you come to the job on the agreed date and start work.

I said that I don't ask for deposits but I don't have a problem with contractors asking for them. I think the deposit needs to be reasonable. When you show up at the job with material to start work you can ask them for a progress payment.

 

[Tiger Electrical]

We do residential service. If a project is less than a day it is COD on completion. If a project is more than a day, an advance will cover the first day. On larger projects it is common to require more than 50%. We recently did a project for a landlord on rental property with a $3k advance on less than $5k. There was a change in the middle that was 100% due in advance. As others have mentioned, it keeps the cash flow good. Laws vary by state.

Front loading is your best friend. If you have an advance that covers the project to the next progress payment, then a progress payment that takes you through final with only the net profit as a final payment you will be at cost at any point if the customer were to back out or refuse a payment.

Match up to doing the whole project without an advance and having the customer use the payment as leverage for free extras, or as payment to a lawyer to cheat you out of everything. IMHO small final payments make friendly business endings. Large final payments can be very tempting to the wrong type of customer. Anyone who has had a $10k final held over a $50-500 item knows what I mean.

 

[Rewire]

You have the TV in your possession so your traded your money for a product. That is a fair trade. If you ask a homeowners for a $5,000 deposit for a $10,000 project when the contract is signed what to they have for their money other than a piece of paper. You drive off in your truck and they have to hope you come to the job on the agreed date and start work.

I said that I don't ask for deposits but I don't have a problem with contractors asking for them. I think the deposit needs to be reasonable. When you show up at the job with material to start work you can ask them for a progress payment.

The deposit covers those materials I show up with along with the permit I just pulled so I could show up. The deposit also secures my time slot. A deposit also is a sign of good faith from the client that they are not going to continue to "shop" .

 

[220/221]

What if the homeowner gets 3 bids on a project and doesn't give you the job? You still require them to pay you 50% of the project for your time for prepare the estimate? Estimating time is a cost to you but it is part of your overhead. I sure hope that it doesn't cost you $5,000 to bid a $10,000 project

Ridiculous rhetorical questions and scenarios aren't a good way to make a credible point in a discussion.

In a business transaction, some degree of faith is necessary. Your suppliers trust that you will pay your invoices monthly. A consumer can trust a reputable contractor to complete their job. That's what we do for a living every single day.

There are reputable and crooked homeowners and contractors. Common sense and a little diligence is all it takes to know the difference. For example, I wouldn't even do a service call for a house flipper without a big enough deposit to cover the task. As a homeowner, I wouldn't give a deposit to some unlicensed clown working from his house/pickup.

And, it's actually easier here for a homeowner to take action against a contractor. There is a fund set up with the registrar of contractors to help homeowners.

 

[Fulthrotl]

There are reputable and crooked homeowners and contractors. Common sense and a little diligence is all it takes to know the difference. For example, I wouldn't even do a service call for a house flipper without a big enough deposit to cover the task. As a homeowner, I wouldn't give a deposit to some unlicensed clown working from his house/pickup.

it's not all that hard to see what a person is about.

i've got a ficus tree in the front yard. it needs thinning again.
the tree service i've used in the past is a registered arborist.
they do a good job, but they aren't cheap. it's been $375 for
several years now. every year, i'll call, and they will come out
and do it.

this year, when i call, they say they will send someone out to
do an estimate.... hmm.... so he drops the estimate in the
mailbox, as i wasn't home, and it's now $500.

sorry, no sale. i'd like to raise my hourly rate 33% effective
immediately, as well.

so, a fellow appears at my door yesterday with a business
card, speaking limited english, and says he will do it for $200.

so i look at the license number, and it is Lic. #005369

that is neither a state license number, or an arborist number.
it's not a city business license number, either.

so, we have a guy in a truck, with a phony license number.
and googling him shows absolutely nothing. sorry, no sale.
in this day and age, i can google the name of your cat and
probably get your name and home address from the results.

 

[Rewire]

sometimes you need to shed those customers who only want a low price.

 

[satcom]

I believe that only applies to resi work. In many other jurisdictions any deposit from resi customers must be held in an escrow account until the material is delivered/work is completed.

-Hal

What many of the contractors do to stay within the reg's they set up a retail supply with invoice and delivery, this way the material is paid for and delivered ready for the contractor to build. But monies held in escrow, works in all the states

What you require a a deposit may be held to a small amount, but the escrow account can hold the larger amount of the monies.

We like to work with the bank, everything is easy and safe for both us and the customer.

 

[kwired]

If this is true, it is...... insane. I am supposed to fund your project? I'm a contractor, not a bank

:happyyes:

I went to Wal Mart and asked if I could take a flat screen TV home and connect it then send them a check. Would you believe they told me no. They wanted FULL payment before I could even take it home. That is outrageous that they want full payment before the TV is mounted and working.

Not exactly the same thing as if they were also contracted to install it for you.

it's not all that hard to see what a person is about.

i've got a ficus tree in the front yard. it needs thinning again.
the tree service i've used in the past is a registered arborist.
they do a good job, but they aren't cheap. it's been $375 for
several years now. every year, i'll call, and they will come out
and do it.

this year, when i call, they say they will send someone out to
do an estimate.... hmm.... so he drops the estimate in the
mailbox, as i wasn't home, and it's now $500.

sorry, no sale. i'd like to raise my hourly rate 33% effective
immediately, as well.

so, a fellow appears at my door yesterday with a business
card, speaking limited english, and says he will do it for $200.

so i look at the license number, and it is Lic. #005369

that is neither a state license number, or an arborist number.
it's not a city business license number, either.

so, we have a guy in a truck, with a phony license number.
and googling him shows absolutely nothing. sorry, no sale.
in this day and age, i can google the name of your cat and
probably get your name and home address from the results.

Cat's name is "fluffy", lets see if you can find me on that alone

 

[Rewire]

:happyyes:



Not exactly the same thing as if they were also contracted to install it for you.

Cat's name is "fluffy", lets see if you can find me on that alone

I know it is not the same but if you think about it how many people other than contractors let you get away without payment at time of service or deposit ?

 

[readydave8]

I googled Fulthrotl, got Randy Allen, Huntington Beach, California

 

[ceb58]

About to start a new construction home for friends/ neighbors. From the start it was agreed on that it would be done as / and they would be treated as a customer. I do not know their contractor, never heard of him and what little dealings I have had with him so far don't know if I trust him.. That's why my contract states 20% upfront, 40% at rough in and 40% plus add on's at final. Last thing I want is to get stuck and I have to resort to lien's on the property

 

[jmellc]

i have to get some up front on larger jobs, any quoted job over 500. I get 1/4 to 1/3 up front, remainder at finish, or another 1/3 after roughin if applicable. I saw a former boss get strung out many times waiting for payments & he got burned a couple of times.

BS that I don't have expenses up front. Fuel, insurance, permits, payroll if I hire help; they don't work for free. Sometimes I have supply bills due for a previous job that I haven't yet been paid for. It all adds up. I never had a large cash reserve for rainy days either. If I did, it may be a different story.

I turned down a job this week that I really needed but woman was much too flaky; several contractors have bailed out on her. If I had taken her job, it would have been a high price & 100% up front.

 

[Volta]

....
To me someone asking for a large amount of money upfront is a flag that they are behind thier bills and want my money to pay for other projects. There is no real expence incured by the contractor at the time the contract is signed so what I'm I paying for?

I never ask for deposits. I have only have had trouble collecting a few times in the 29 years I have been in business and it has always been the final payments so a deposit would not have helped.

Around here, a commercial electrical permit costs $450....

Resi is $200.

 

[curt swartz]

Around here, a commercial electrical permit costs $450....

Resi is $200.

That money is spent after the contract is signed. My response was to the post saying the deposit was to cover the time doing the estimate.

I realize that costs are inured to start a project. I already stated that I don't have an issue with asking for a deposit. I don't agree with a blanket 50% deposit on all jobs or other large deposit. The deposit should only be enough to get the job started. After the job is started you can ask for additional progress payments. The amount really depends on the size of the project. If its a 1 or 2 day project I can see getting a larger percentage. If the job is going to take several weeks or more there is no way I'm going to give someone 50% upfront.