Service Work

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SparkyEst.

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Northern Indiana USA
Good Morning All! I'd like to Thank You upfront for taking the time to read this post and comment if you wish to.

I am currently working for a large general contractor and have 11 guys in my division for the electrical side. Our company has over 80 employees as a whole, but we mainly do contract work. I am looking at starting to drive our service side of the business and starting out right now most of the service work we do is with previous clients (so I know they pay their bills). I am looking at branching out to new perspective clients in 2020, and have a good drive to do so early in the year so things are on the positive side so far. Here is my question, on the contract work I understand that we are getting paid per "draw" pretty standard in our industry. On the service side, how do you do your billing? Do you have any upfront cash from the customer for the service work?

Situation: Looking at doing a 100A single phase service upgrade to a 200A three phase service for a new client. Lets say the estimated cost is $6,000.00 (round numbers) and that is what you and the customer decide is an amount worth doing the work for. Do you ask for any of the $6,000.00 upfront, let's say enough to cover material and half the labor hours? Or do you just ride the cost out and draw as the work is completed? What do you do for your business on the Service industry side?

Thanks!
 
In my State, down payment limits are 10% of project or $1000 whichever is less.

Unless operating without a State license, where no project or down payment can => $500.-

This is all part of a much broader State license law, which consumers can use to lawfully withhold payment "discouragement", with the threat to prosecute Ignoramus contractors.
 
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SparkyEst. said:
Good Morning All! I'd like to Thank You upfront for taking the time to read this post and comment if you wish to.

I am currently working for a large general contractor and have 11 guys in my division for the electrical side. Our company has over 80 employees as a whole, but we mainly do contract work. I am looking at starting to drive our service side of the business and starting out right now most of the service work we do is with previous clients (so I know they pay their bills). I am looking at branching out to new perspective clients in 2020, and have a good drive to do so early in the year so things are on the positive side so far. Here is my question, on the contract work I understand that we are getting paid per "draw" pretty standard in our industry. On the service side, how do you do your billing? Do you have any upfront cash from the customer for the service work?

Situation: Looking at doing a 100A single phase service upgrade to a 200A three phase service for a new client. Lets say the estimated cost is $6,000.00 (round numbers) and that is what you and the customer decide is an amount worth doing the work for. Do you ask for any of the $6,000.00 upfront, let's say enough to cover material and half the labor hours? Or do you just ride the cost out and draw as the work is completed? What do you do for your business on the Service industry side?

Thanks!
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Best practice is ask for thirds. So $2,000 up front, $2,000 after work is complete and $2,000 after inspection. Customers are weary of paying in full up front and in some states it’s unlawful to aske for more than a 3rd. This is to protect the consumer
 
For small jobs where I give a phone quote, I get full payment when the job is complete. For jobs where I make a visit in order to make a bid/quote/estimate and a contract gets signed, I ask for 30% upfront. If it's a short job like a panel change, the balance is paid on the day the job is complete. If it's a long job like a house remodel, I will set up milestones and payments usually after each successful inspection.
 
Coppersmith said:
For small jobs where I give a phone quote, I get full payment when the job is complete. For jobs where I make a visit in order to make a bid/quote/estimate and a contract gets signed, I ask for 30% upfront. If it's a short job like a panel change, the balance is paid on the day the job is complete. If it's a long job like a house remodel, I will set up milestones and payments usually after each successful inspection.
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We work alike. (y)
 
Coppersmith said:
For small jobs where I give a phone quote, I get full payment when the job is complete. For jobs where I make a visit in order to make a bid/quote/estimate and a contract gets signed, I ask for 30% upfront. If it's a short job like a panel change, the balance is paid on the day the job is complete. If it's a long job like a house remodel, I will set up milestones and payments usually after each successful inspection.
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very wise scheme (y)
 
ramsy said:
In my State, down payment limits are 10% of project or $1000 whichever is less.

Unless operating without a State license, where no project or down payment can => $500.-

This is all part of a much broader State license law, which consumers can use to lawfully withhold payment "discouragement", with the threat to prosecute Ignoramus contractors.
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The OP is talking about 3 phase , I doubt this is residential. only residential in CA is limited to 10% or 1000.00 max.
You can charge a business any amount you wish. However you really are not allowed to let work get ahead of payments afterword's. to
If you don't know the customer I would get as much up front you can with reason. Down the road you can change your policy.
 
We do mostly service and require a 33% deposit to schedule/start the work. We don't require the rest until it is complete. We are COD (Cash On Delivery) which means we collect as soon as we have completed the work and we always communicate these things to the customer ahead of time. We never have any issues with customers over this. Communication is key!
 
For over 40 years we have rarely ever asked for a down payment on any type of work and have almost never been disappointed when collecting money. On small jobs - <$5k - we invoice at the completion of the job. On new construction or larger jobs we set up payments based on progress and measurable milestones. Some folks think we are nuts, acting as a bank, but all of that expense is rolled into the overhead costs. We believe that the trust we extend to the customer is appreciated and gives the customer confidence that we are going to deliver as promised. As I said, it has worked very well for us for over four decades and so we are not likely to change. Another component to this is to make it as convenient as possible for the customer to pay; online, by text, pay-pal, etc.
 
LarryFine said:
Giving a down payment goes a long way in boosting customer expectations. ;)
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Another way to look at it I suppose. There is probably no perfect formula. We have a system that works very well for our company in our service area. Out here in the Peoples Republic of California we are prevented by law from receiving a down payment on any home improvement project anyway. And we are not allowed to get financially ahead of the customer at any point in the project. Best bet for us is to give the very best and most professional work we possibly can, get paid, and move on.
 
My decision on down payments is primarily dependent on initial materials cost, and whether a permit is involved.
 
Sierrasparky said:
The OP is talking about 3 phase , I doubt this is residential. only residential in CA is limited to 10% or 1000.00 max. You can charge a business any amount you wish. However you really are not allowed to let work get ahead of payments afterword's. to If you don't know the customer I would get as much up front you can with reason. Down the road you can change your policy.
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It appears downpayment limits only apply to ignoramus contractors. LawReferenceBook2019.pdf says "Home Improvement" contracts can be exempt from downpayment limits and lien disclosures:

2019 CA Contractor License Law § 7159.5 (a)(8) said:
CHAPTER 12. BUSINESS AND PROFESSIONS CODE pp444-445
(8) A contractor furnishing a performance and payment bond, lien and completion bond, or a bond equivalent or joint control approved by the registrar covering full performance and payment is exempt from paragraphs (3), (4), and (5), and need not include, as part of the contract, the statement regarding the downpayment specified in subparagraph (C) of paragraph (8) of subdivision (d) of Section 7159, the details and statement regarding progress payments specified in paragraph (9) of subdivision (d) of Section 7159, or the Mechanics Lien Warning specified in paragraph (4) of subdivision (e) of Section 7159. A contractor furnishing these bonds, bond equivalents, or a joint control approved by the registrar may accept payment prior to completion. If the contract provides for a contractor to furnish joint control, the contractor shall not have any financial or other interest in the joint control. Notwithstanding any other law, a licensee shall be licensed in this state in an active status for not less than two years prior to submitting an Application for Approval of Blanket Performance and Payment Bond as provided in Section 858.2 of Title 16 of the California Code of Regulations as it read on January 1, 2016.
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Harsh words Ramsey. From a practical standpoint the down payment restrictions & limitations on home improvement contracts is what most CA contractors are held to. Blanket bonds and other methods to get around the restrictions exist but a contractor can hardly be viewed as an "ignoramus contractor" for not choosing to go that route.
 
bkludecke said:
Harsh words Ramsey. From a practical standpoint the down payment restrictions & limitations on home improvement contracts is what most CA contractors are held to. Blanket bonds and other methods to get around the restrictions exist but a contractor can hardly be viewed as an "ignoramus contractor" for not choosing to go that route.
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He was saying in different words that limits on taking deposits are only applied by the state on contractors who don't display ethical business practices. I didn't take it as him saying that contractors who choose to take down payments as ignoramus. At least that's what I interpreted from his statement.
 
TheGingerElectrician said:
He was saying in different words that limits on taking deposits are only applied by the state on contractors who don't display ethical business practices. I didn't take it as him saying that contractors who choose to take down payments as ignoramus. At least that's what I interpreted from his statement.
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Yeah, that's probably a better viewpoint. This has gotten a bit off topic anyway. Life is good.
 
LarryFine said:
My decision on down payments is primarily dependent on initial materials cost, and whether a permit is involved.
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I didn't say it above, but my decision on down payment amount also varies with how many red flags the potential client is throwing up. Those that give me an uneasy feeling get charged more upfront. Those that give me a very uneasy feeling will get declined.

P.S. Real estate agents always give me an uneasy feeling.
 
Coppersmith said:
I didn't say it above, but my decision on down payment amount also varies with how many red flags the potential client is throwing up. Those that give me an uneasy feeling get charged more upfront. Those that give me a very uneasy feeling will get declined.

P.S. Real estate agents always give me an uneasy feeling.
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👍
 
bkludecke said:
For over 40 years we have rarely ever asked for a down payment on any type of work and have almost never been disappointed when collecting money. On small jobs - <$5k - we invoice at the completion of the job. On new construction or larger jobs we set up payments based on progress and measurable milestones. Some folks think we are nuts, acting as a bank, but all of that expense is rolled into the overhead costs. We believe that the trust we extend to the customer is appreciated and gives the customer confidence that we are going to deliver as promised. As I said, it has worked very well for us for over four decades and so we are not likely to change. Another component to this is to make it as convenient as possible for the customer to pay; online, by text, pay-pal, etc.
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Not going into AD HOMINEMS. . . those restrictions (10% down or $5000) are spelled out when securing a contractor’s license in CA.. . . they even appear in one of the questionnaires given by California Consumer Affairs when applying for a business license. . . after passing the test for electrician’s qualification.
I am an EE but I still had to register and be certified by the State of California to engage in electrical contracting. This is separate from PE (Electrical) registration.

I was exempted to take the technical part of the exam, e.g. planning, estimate, NEC etc.
But I had to pass the test for business law, accounting and management portion.

This restriction is an aggregate of other protection for both contractors and consumers.
You are very lucky to be running a business in an idyllic enclave that everyone can be trusted.
Running a business in a city with 2 million residents is different.

I had done projects during my active years for both private and government-funded renovation and new construction for the State of California. . . mostly for the DOT (Dept. of Transportation)

Most Federal and State Projects were exempt from permits and bureaucracy of NEC enforcement. EPA clearance and OSHA were all we need. My electricians were the best. ;)
We didn’t need inspectors then. . . it may have changed now IDK.
State agency government engineers write off (approve) completed projects.

Even in this highly-controlled business environment, contractors are required to submit progress report before a contractor can request for partial or full payment.
Someone [here] seems to have the idea that only home improvement projects are subject to Mechanics Lien Law.

This is patently erroneous. What is good for the goose is good for the gander.

To the poster who made the above assertion:
I submit to you the question.. .

Is a particular contract work (single phase or three phase) immune as you claimed, and not subject to invocation of the Mechanics Lien Law regarding owners’ failure or unwillingness to pay an honest, hardworking contractor?

Granted, contractors, whether running a “fly-by-night” or legitimate operation --and taking advantage of innocent homeowners, that had been victimized by bogus contractors-- are ever present in our midst. Scammers are a sad reality.

These “bad guys” come from all over the country --from Florida to Hawaii when the biggest earthquake in recent years devastated the entire L.A. basin, that cost $12 billion dollars in damage.
Homeowners were desperate to restore their property back in shape and become habitable. Some homes were condemned and declared not fit for human habitation by the Dept of Building and Safety.

My rental unit suffered $126 k damage but a big portion was covered by insurance. The remaining cost didn't hurt much because I claimed it as business loss.
Homeowners hired (unknowingly) bogus contractors. . .gave them down payment only to disappear into the golden sunset. A rude awakening for homeowners.

In summary:
Consumer and business protection laws are in place, because, sometimes, things are not what they seem.
 
Well, I appreciate all the comments and takes on this particular subject. Currently our service department is done in a manner as a Time and Material basis, and with my current clients it works great. I am looking at taking on new clients and clients that we as a General Contractor, have not done work for in the past, so we do not know their reliability to pay, but we do large scale projects with a great deal "in house" banking for multi-million dollar project. Don't ask details as I'm not privy to all that per the owners of 40 years know how to make it work. They are on board with growing the service department, but are leaving it up to me make sure it is profitable. Therefore, if everyone operated in a manner like I personally do I would never short change someone for the work they have completed or done for me (pending quality and expectations were met). I guess people call that ethical and the character of a man, but I was also raised on a farm when a hand shake is an agreement that wouldn't be broken. Unfortunately that society has moved to the way side for more crooks and deceivers. I think the best option that I have seen here is: build relationships with said customers, know the limitations of contract vs service, and lastly make sure to uphold your end of the bargain. If those three things are done, I would venture to say this is going to grow like wildfire, since this post I have already created 4 new accounts. Cheers to all!
 
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