Down Payments

[Minuteman]

I just finished watching a talk show program on Fox where they were speaking about unethical home remodeling contractors. They had the guy from Trading Spaces on there and he warned everyone about giving any money to a contractor upfront. He said that it was a big red flag.

I do primarily service work but also remodel/additions. Comm. office build outs.
On larger projects I ask for 1/3 down payment, 1/3 after rough in and 1/3 after completion.

How do some of you guys do it?

One of the local TV news shows has a segment called "In Your Corner". You know the type. Somebody goes around ripping off people and the News guy goes after 'em. Seems like about once a week they give the same warning about giving upfront money to a contractor.

Like you, I do the 1/3, 1/3, 1/3 on larger jobs, especially for a new customer. That's just the way that it is. I can't have that much money setting out on a job waiting to get paid on. We have to have cash flow to survive.

 

[Sparky555]

I don't know where these areas are where where homeowners are no problem, but in the area we work, homeowners forget where their check book is, claim the us postal service has the check, my husband makes out the checks, i will send it in the mail, just don't hold your breath waiting, we use to get hung for about 30% of the billing, so we never work with out a down payment or advance credit card pay.

Over 20 years our I've lost less than 1% of Gross Receipts to bad debt. However, if someone calls for service and claims not to have cash, a check or a credit card it's usually their Stage 1 of refusing to pay. Time to kick collections into gear. If I was over 10% with collection problems I'd require credit cards in advance.

Dave

 

[ike5547]

Over 20 years our I've lost less than 1% of Gross Receipts to bad debt. However, if someone calls for service and claims not to have cash, a check or a credit card it's usually their Stage 1 of refusing to pay. Time to kick collections into gear. If I was over 10% with collection problems I'd require credit cards in advance.

Dave

My 'estimate' would be something like .0001% of Gross. I can count the number of people who have screwed me over on one hand.

 

[emahler]

The % of bad debt will increase exponentially with the addition of employees when it comes to small resi.

 

[ike5547]

The % of bad debt will increase exponentially with the addition of employees when it comes to small resi.

The contractor I used to work for had the same experience as far as bad debt that I have. Negligible. He expressed it as a small fraction of a percent.

He had up to and approximately 60 employees which tapered down to about ten during the last decade before he retired.

 

[emahler]

The contractor I used to work for had the same experience as far as bad debt that I have. Negligible. He expressed it as a small fraction of a percent.

He had up to and approximately 60 employees which tapered down to about ten during the last decade before he retired.

small resi service work? or resi construction?

when you do service work, as you grow, you deal with more people...

maybe it's just NY/NJ...

 

[charlie]

When I was an electrical contractor (1975 - 1980. Yes, I am old

), I never collected a down payment. As a homeowner, I have never paid a down payment unless there was specialized material ordered that could not be used elsewhere. If a contractor (including an electrician because I don't do the work anymore) wants a down payment, that is a deal breaker and I will get someone else.

FWIW, I don't watch those home improvements shows. It seems that most of them are doing things that make my skin crawl.

 

[Minuteman]

If a contractor (including an electrician because I don't do the work anymore) wants a down payment, that is a deal breaker and I will get someone else.

Example. GC we work for is adding 2900 ft/2 to an existing home. Our price is just under $16,000 for relocating the service and adding 100 amps and for wiring the addition. GC took a draw before commencing. There is nothing wrong with us taking one from him. :smile:

Now, say you want to hire me for a couple thousand dollar job at our house. No problem. Payment due upon completion. Cash or check will be fine :grin:

 

[petersonra]

Some contractors like down payments, other don't. i have done it both ways. most of the time for small amounts (like <$1000) I have just paid on completion.

For some larger jobs I have made down payments, for others not.

I do think that a large down payment (like 50%) is a red flag that the contractor needs the front money. I would be real nervous about that after being burned once by a guy that I gave a 1/3 down payment to who went belly up in the middle of the work.

 

[electricguy61]

California contractor law: Down payment cannot be more then 10% or $1000, which ever is less.

http://www.cslb.ca.gov/Resources/GuidesAndPamphlets/HomeImprovementContractsConsumerGuide.pdf

I seldom ask for a down payment, unless I sense that they're still shopping around, and might cancel the contract.

 

[shockin]

I never require a down payment. In our area you would be substantially reducing your pool of customers if you only did work for people who would give you a cash deposit. It is just not the norm. We don't have any trouble geting paid at the time of completetion. Yes this means that you will have to carry the cost for a short time, but this is a cost of doing businees and is covered in your price.

Also, I agree with what Charlie said, as a home owner I would never give a down payment. A contractor that needs a cash deposit to purchase materials is not the guy I want to hire. I know that his supplier will give him at least 30 days to pay for the material after he buys them. If he can't cover his labor for a couple weeks until he is finished, his company can't be that stable.

I have built a number of homes, and I have never paid until 100% complete, or a rough-in draw and trim draw in the case of the plumber or HVAC.

I suppose maybe it's a regional thing - luckly people in my region are the trustworthy type.

 

[satcom]

While reading some of the posts, I get the sense, we have a lot of guys on here that have some strange ideas, of how a business operates.

 

[powerslave]

I suppose maybe it's a regional thing - luckly people in my region are the trustworthy type.

What region are you in?

Just asking to get a feel for what regional practices are out there.:smile:

I know the law is also different in each state.

 

[petersonra]

While reading some of the posts, I get the sense, we have a lot of guys on here that have some strange ideas, of how a business operates.

I have a couple of overgrown bushes I wanted to get moved. I had one moved a few years ago, and it worked out good, and I just hate to cut down a full gorwn bush.

Guy comes out today, tells my wife minimum of $800 to move the two bushes with his machine.

I figure I could dig them out by myself in a couple hours.

 

[iwire]

I figure I could dig them out by myself in a couple hours.

So do it, but don't expect a business to charge what you can do it for. :smile:

Or if you can get an insuranceless handyman to do it.

 

[drbond24]

I have a couple of overgrown bushes I wanted to get moved. I had one moved a few years ago, and it worked out good, and I just hate to cut down a full gorwn bush.

Guy comes out today, tells my wife minimum of $800 to move the two bushes with his machine.

I figure I could dig them out by myself in a couple hours.

There are enough lazy people that this guy probably gets good business with his machine. Most wouldn't want to spend a couple of hours digging.

This is even further off track, but when I lived in Virginia a female friend of mine wanted a tree cut down in her yard. She called a tree-cutting service and they wanted several hundred dollars just to come cut it down and leave it laying in her yard. I have a chain saw and a pickup truck (both are requirements when one is born in West Virginia) and I charged her $250 to cut it down and haul it off. I just took a day off work and doubled my money for that day, plus got firewood as a bonus.

 

[satcom]

So do it, but don't expect a business to charge what you can do it for. :smile:

Or if you can get an insuranceless handyman to do it.

Just up the street, we hear a loud bang and boom, they hired a handyman to take down the tree, no insurance coverages, after all what could happen, who knew the tree would take out half the house, and destroy two cars in the neighbors driveway, look at the good side, no deaths or serious injuries, this time.

 

[petersonra]

Or if you can get an insuranceless handyman to do it.

Not a bad idea. Lots of handyman type services in the paper.

 

[petersonra]

There are enough lazy people that this guy probably gets good business with his machine. Most wouldn't want to spend a couple of hours digging.

This is even further off track, but when I lived in Virginia a female friend of mine wanted a tree cut down in her yard. She called a tree-cutting service and they wanted several hundred dollars just to come cut it down and leave it laying in her yard. I have a chain saw and a pickup truck (both are requirements when one is born in West Virginia) and I charged her $250 to cut it down and haul it off. I just took a day off work and doubled my money for that day, plus got firewood as a bonus.

My BIL cut down a tree in my front yard. Cut the trunk into firewood sized chunks. I had to get it out of the yard, and clean up. N/C. Not even beer. And he supplied the chain saw.

 

[boboelectric]

I like 1/2 down when 1/2 done before 30 days.