# opinions on down payment or deposit?



## Sampietro (Apr 14, 2011)

I haven't been on here for a while just looking for everyones opinion on getting a deposit before you start the job? Most of the time I like to get a third of the over all job cost. Is that to much to ask for? Just to give you some insight about 65-70% of my work is sub to me. This year I would like to do more of my own work just right now I don't have very many accounts with the suppliers around me. Any information would be appreciated thanks.


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## Chris Johnson (Apr 19, 2007)

In order to help you grow your business you need financial help, most of us have done this through trade accounts with suppliers.

Depending on your field of work dictates who you need accounts with. I have 4 accounts, ICF supplier, rebar supplier, concrete supplier and pump truck. I buy so little lumber for footings and such I just pay COD for that.

Based on how I have it set up, most jobs I get no deposit. I get deposits of 10% only from one of clients. And then again depending on the client is how I schedule payments. If we are doing a single house, draws are set up on milestones, or if we are doing a large job I set it up as draws on a certain date based on completed operations.

I know smaller contractors who are ordering special or custom pieces want all that money up front since the product is non returnable if it's ordered or made specifically for that job.


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## greg24k (May 19, 2007)

I don't know what everyone else does, but I never use percentage to break up payments... I always break up payment schedule to stay ahead... this way before I order any material or call any subcontractor to do any work on my job, I already have the money in my bank from a customer... So there is never " you have to wait, I didn't get paid yet" or "sorry I cannot pay you, I got stiffed by a customer" scenarios exist.


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## ohiohomedoctor (Dec 26, 2010)

greg24k said:


> I don't know what everyone else does, but I always break up payment schedule to stay ahead... this way before I order any material or call any subcontractor to do any work on my job, I already have the money... So there is never " you have to wait, I didn't get paid yet" or "sorry I cannot pay you, I got stiffed by a customer" scenarios exist.


I just started doing that after reading about it on here. I honestly think it has decreased my closing rate slightly but it sure has made me feel better, so in my opinion its the only way to go. :thumbsup:


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## greg24k (May 19, 2007)

ohiohomedoctor said:


> I just started doing that after reading about it on here. I honestly think it has decreased my closing rate slightly but it sure has made me feel better, so in my opinion its the only way to go. :thumbsup:


No doubt about it, some HO don't feel comfortable with payment schedule sometimes, and yes you will lose a few here and there because of that... But I have learned a lesson almost 30 yrs ago and since then it was carved in stone to do business that way. If they don't feel comfortable paying, I don't feel comfortable doing the work...Trust is a two way street.

I will also add this... Since I started doing that, I never lost any sleep worrying about getting paid on any job not to mention the Customer satisfaction level increased dramatically, because the job runs smooth and 95% of the time completed before anticipated completion date, because you always stay ahead :thumbsup:


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## Chris Johnson (Apr 19, 2007)

I know where you are coming from Greg, when I was GC if you had cash to pay the subs immediately they were on your job first and you can bring them in faster on the schedule. Unfortunately with what I do now it doesn't work, but on the one of jobs I get 90% payment after inspection prior to concrete being placed.


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## txgencon (Jan 4, 2011)

I don't believe in down payments or deposits. But that's just me. I know I'm in the minority on this one.


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## Gus Dering (Oct 14, 2008)

The licensing agency in the the state you work in probably determines the amount of deposit you can take. 

Here in California, you can take 10% or $1000 (which ever is less) for work performed at someone's home.


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## BamBamm5144 (Jul 12, 2008)

txgencon said:


> I don't believe in down payments or deposits. But that's just me. I know I'm in the minority on this one.


I'm the same way. Very seldom do I request a down payment.


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## ohiohomedoctor (Dec 26, 2010)

BamBamm5144 said:


> I'm the same way. Very seldom do I request a down payment.


But roofing is a one day job and all your materials are on account. Roofing is the exception to many contractor rules...


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## txgencon (Jan 4, 2011)

ohiohomedoctor said:


> But roofing is a one day job and all your materials are on account. Roofing is the exception to many contractor rules...


I can't tell.

Are you saying roofing always requires a deposit...or never does?


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## Chris Johnson (Apr 19, 2007)

Gus Dering said:


> The licensing agency in the the state you work in probably determines the amount of deposit you can take.
> 
> Here in California, you can take 10% or $1000 (which ever is less) for work performed at someone's home.


True, but we had ways around that

On the 'one of' jobs, I would follow the rules, but once I put my trailer on site I could bill for mobilization and there is no rule to how much or when once you start


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## pinwheel (Dec 7, 2009)

I'm typically in & out within 2 weeks on new work. I ask for materials paid when I drop off flooring & make it clear payment comes on the day we complete the project. I have a high closing rate & a high collection rate. If I get a bad feeling about a client in the initial interview, I'll cover my ass, otherwise, it's just a handshake agreement.

I know I'm in the minority on CT, but in the majority in the area I work.


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## Sampietro (Apr 14, 2011)

I guess I am just worried about getting buried if I at least get the cost of material up front their is not as much to worry about in the end. Thanks everyone for the advice


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## RobertCDF (Aug 18, 2005)

If your roofing and not requiring a deposit I think that's even more crazy, do you take a payment the morning you show up to do the install? Or do you only bill on completion? 

I do a minimum deposit of $1,000 and then there is usually another few thousand due a week before we start (that's when I order our steel joists, and once they make them I own them) so I make sure all costs are covered ahead of time.


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## Gus Dering (Oct 14, 2008)

Chris Johnson said:


> True, but we had ways around that
> 
> On the 'one of' jobs, I would follow the rules, but once I put my trailer on site I could bill for mobilization and there is no rule to how much or when once you start


There are lots of ways around it. But the law is still there. You can get as much money up front as you like with no problem so long as your client does not report you. 

I have always wondered how it would be viewed by the CSLB if someone had a line item of 10 grand to move a trailer on site. Or charge triple the cost of materials so you can get some operating capital after a lumber drop. My guess is that they have seen it many times and recognize it for what it is.

It has been my experience that so long as you do what you say you are going to do and exceed expectations, you can operate anyway you like. Its when you stumble into a bad experience where all these things can backfire on you.

Most laws are written to protect the homeowner. At no time should they be exposed to a loss greater than the initial $1000.


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## Chris Johnson (Apr 19, 2007)

Gus Dering said:


> There are lots of ways around it. But the law is still there. You can get as much money up front as you like with no problem so long as your client does not report you.
> 
> I have always wondered how it would be viewed by the CSLB if someone had a line item of 10 grand to move a trailer on site. Or charge triple the cost of materials so you can get some operating capital after a lumber drop. My guess is that they have seen it many times and recognize it for what it is.
> 
> ...


Your right, it's all about integrity of both the contractor and customer.

My product is universal, I can use it on any job it's all the same, I feel for you doing custom cabinets and job specific if someone backs out on you.


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## greg24k (May 19, 2007)

NJ has the same law for the down payment of 10% etc, but thats the down payment only which is received at signing of contract and the limit is set to protect the customer, so nobody will run off with the large amount of money before the job is starting.

The actual law interpreted as follows...When doing a contract you have a down payment (10%)... then 1st payment (which has nothing to do with the down payment) at starting work when permit is issued, etc. That first payment can be anything, as an example If I order cabinets for that job they cost 10k, I can collect 10k on the first payment + what ever amount I need to start that job, i.e additional material cost, overhead, etc. Then 2nd payment, the same what ever that payment needs to be to cover costs for the 2nd phase of the job and 3d payment the same and final. Now there is a law for a final payment as well, HO should not pay a contractor until all of the final inspections completed... This is stated on the back of the permit card.

Down payment and final payments only come up during court trials when someone took off with the money or never completed the job...then lawyers go over contracts with a fine comb and pick every smallest detail even if a comma in the wrong place, they will make an issue out of it.


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## BamBamm5144 (Jul 12, 2008)

RobertCDF said:


> If your roofing and not requiring a deposit I think that's even more crazy, do you take a payment the morning you show up to do the install? Or do you only bill on completion?
> 
> I do a minimum deposit of $1,000 and then there is usually another few thousand due a week before we start (that's when I order our steel joists, and once they make them I own them) so I make sure all costs are covered ahead of time.


Most cases I show up with the invoice with the full balance due.


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## RobertCDF (Aug 18, 2005)

BamBamm5144 said:


> Most cases I show up with the invoice with the full balance due.


And if they don't pay? Your day is jacked up right? What if the supply house already stocked the roof and you bought the permit?


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## VinylHanger (Jul 14, 2011)

I try and get my costs for material and profit and overhead on small jobs where I have to order materials. I then order materials as I am standing there, or soon after. No way would I do a 3,000 dollar window job, order 1,500 bucks in non-returnable windows on my dime and only ask for 300 dollars down. That's nuts.


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## J L (Nov 16, 2009)

Our down payments range from 5% to 50%. It all depends on what type of work. Replacement windows, custom cabinets, or other similar items require a much higher down payment. If we're booked a few months out, we typically require 5% to hold a spot on our schedule and then we have a payment due upon start of work.


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## roofer up north (Apr 14, 2011)

I've always required 50% of the total cost up front, and never had a problem collecting it. I tell the HO that this is "so that I'm buying materials with your money, not mine."


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## ultimatetrim (Sep 7, 2011)

Used to do the 1/3 payment schedule, now it is 50% at signing. Been burned before hated it. I look at it this way you buy a house or car you put money down, if they are leary on money down , then I'm Pratt on getting paid


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## Clarke Carpentry (Apr 22, 2011)

I always put into proposals that 100% of materials and 40% of labor costs are due upon signing of contract. Then the rest of the payment schedule depends on the job but usually something like a further 40% after 2 weeks and balance upon delivery.


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## BamBamm5144 (Jul 12, 2008)

Clarke Carpentry said:


> I always put into proposals that 100% of materials and 40% of labor costs are due upon signing of contract. Then the rest of the payment schedule depends on the job but usually something like a further 40% after 2 weeks and balance upon delivery.


And people actually sign with you?


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## ohiohomedoctor (Dec 26, 2010)

BamBamm5144 said:


> And people actually sign with you?


It sounds like he must be selling something tangible like furniture or cabinetry. Most of our granite people are similar to that now.


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## Clarke Carpentry (Apr 22, 2011)

Yeah, the example I gave is usually for a full kitchen or the like. Smaller jobs can be slightly different percentages and schedules. The only thing that doesn't change is getting all of the material costs up front, whether it's a threshold or a skyscraper.


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## TLHWindows (Jan 5, 2012)

We typically require a minimum of 50% down. It doesn't cover all the material but it covers a lot of it. I've found that if you can collect 50% then they are typically not going to bail on the other half.


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## Builttolast (Oct 16, 2011)

Well, here in PA we have an unfortunate law that was passed in 2009...

Contractors can only take a MAXIMUM of 1/3 TOTAL COST as down payment/deposit. Which is ONE reason many of those who follow the law had to increase prices. Alot of the time its materials x3 solely because you buy the material upfront for a job (say a roof) and if the customer doesnt pay, at least you didnt eat material cost, only labor (which if like me, usually working alone isnt as bad as if you have a crew of guys with ya who will of course want their pay and you have to pay them). 
Ive found myself doing 1/3 down and depending on the length of the job it might be 1/3 half way through completion and the remaining 1/3 upon completion OR the remaining 2/3 upon completion - This also depends on prices and keeping prices FAIR.

I bid an interior job at around 1500 and in order to keep the price fair enough for the customer and still make profit my 1/3 down will cover MOST material next 1/3 will cover the rest AND go toward profit final 1/3 is all profit. That was not material x3 rather its trying to keep fair prices while not slitting my throat OR breaking the law.


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## Sampietro (Apr 14, 2011)

Thanks for everyones input. I have been doing 1/3 payments but on most of the window jobs I have done it doesn't cover the cost of the windows. So I end up covering it until I am half way done witch in some cases can be two weeks or more depending on how involved the install is. I think I will start do 50% up front for window jobs. Again thanks for the input.


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## BamBamm5144 (Jul 12, 2008)

Clarke Carpentry said:


> Yeah, the example I gave is usually for a full kitchen or the like. Smaller jobs can be slightly different percentages and schedules. The only thing that doesn't change is getting all of the material costs up front, whether it's a threshold or a skyscraper.


Yeah around here, not making customers pay a deposit really sets you apart.

The only thing you should ever be "in" for is the labor. Materials should be on credit with your supplier.


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## ohiohomedoctor (Dec 26, 2010)

BamBamm5144 said:


> Yeah around here, not making customers pay a deposit really sets you apart.
> 
> The only thing you should ever be "in" for is the labor. Materials should be on credit with your supplier.


But with you on the hook for the suppliers invoice you are really on the hook for the whole kitten caboodle. This being said I agree that it does separate you from the guy who needs gas money to get home. Its still just another example of how roofing can be the exception. It makes very little sense to not require a deposit for large remodeling jobs.


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## BamBamm5144 (Jul 12, 2008)

ohiohomedoctor said:


> But with you on the hook for the suppliers invoice you are really on the hook for the whole kitten caboodle. This being said I agree that it does separate you from the guy who needs gas money to get home. Its still just another example of how roofing can be the exception. It makes very little sense to not require a deposit for large remodeling jobs.


Yeah, it depends on the relationship you have with the supplier. I let my supplier know if I am running into problems then they (the supplier) pursue the homeowner for any money owed and I continue on with my normal work and pay them as people get paid.

On the other hand, when we did a garage addition, my payment schedule was much different and the homeowners final payment was only 3k.

Edit: I read last night that now a good marketing idea is to actually PAY your customers if they have you come out to give them an estimate.


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## EcoBuilder (May 2, 2011)

50% of the estimate up front and rest at the end of the job. The 50% makes sure they are serious about it and locks them in to see it through.


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## Tinstaafl (Jan 6, 2008)

Builttolast said:


> Ive found myself doing 1/3 down and depending on the length of the job it might be 1/3 half way through completion and the remaining 1/3 upon completion OR the remaining 2/3 upon completion - This also depends on prices and keeping prices FAIR.


Unless it's a small job and/or a client I know and trust, I'll never go 2/3 upon completion. That's leaving a lot on the table if things should happen to go south (though they never have yet, knock on wood).

There's nothing in PA's law to prevent you from getting the full cost of materials when you start. Take 10% at signing (there's your down payment), and another X percent when you show up to begin work. :thumbsup:


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## Builttolast (Oct 16, 2011)

Tin - Thats usually the 1/3 - However if I was misunderstood, heres what I was taking about



> Under the new law, you will only be able to accept 1/3 of the total contract amount as a deposit/down payment if the total contract sales prices is $1000.00 or more. This must be clearly outlined in your contract as well.


From here

http://www.pacontractorslicense.com/?p=6

and here

http://www.pittsburgh.bbb.org/article/new-pa-law-regulating-home-improvements-starts-july-1-2009-9704



> If a contract is more than $1,000, the contractor cannot accept a deposit greater 1/3 of the contract price, or 1/3 of the contract price plus the cost of special order materials.


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## Tinstaafl (Jan 6, 2008)

Yes, but my point is that there's nothing in the law that prevents you from getting 10% down, 85% when work begins, and 5% at completion. If you can get a client to go for that. :laughing:

Work your draws right, and you'll never need to front a penny. Not saying I do that, but it's perfectly legal. :thumbsup:


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## RobertCDF (Aug 18, 2005)

Why do you guys do such few draws? 50% at the end 2/3's at the end, your just asking to get ripped off. Here is a quick example of a pay schedule as I would write it for a custom deck with a cover. Lets use $50,000 as the example: 
$1,000 due at contract signing (holds a spot on the schedule) 
$6,000 due 1 week before project is to start (covers permits, engineering, first order of materials) 
$6,000 due upon decking material delivery.
$6,000 due upon completion of deck frame.
$6,000 due upon completion of decking.
$5,000 due upon arrival of roof trusses.
$5,000 due upon installing of roofing.
$5,000 due upon stucco paper inspection
$5,000 due upon installation of custom welded railings.
$3,500 due upon substantial project completion
$1,500 due upon completion of project. 

If for whatever reason someone decides they don't want to pay I'm not out anything, materials, labor, overhead, and profit are covered for the most part at any given time. 

I sell it to the customer as a fair payment schedule, No one is really ahead of the other at any given time during the project.


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## Tinstaafl (Jan 6, 2008)

RobertCDF said:


> Why do you guys do such few draws?


To put it bluntly, it's easier, for both the HO and the contractor. In my (apparently more easy-going) world, there's no need to make it so complicated. But I do set it up so that neither party is way ahead of the other.


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## ranteso (Nov 11, 2010)

Each project for me is custom, so the payment schedule reflects the project costs.

Any special order product will be required up front regardless of amount. If kitchen cabinets are 30K, I get whatever the cabinet shop needs to get that order going, usually 50%, plus other special order items such as granite deposit to hold the slabs, tile, lighting etc.. 

 The first payment can be fairly large, but it's the clients project not yours and it is what it is. A kitchen project can be broken down to 6 or more payments depending on scope, bathrooms 4-5 all depends.

Bottom line it must be fair to both parties and you must show progress before requiring another payment, if that payment is comfortably ahead of work done, that's OK, you'll probably eat that up the next couple days anyway, just be fair and reasonable.


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## J L (Nov 16, 2009)

ranteso said:


> Each project for me is custom, so the payment schedule reflects the project costs.
> 
> Any special order product will be required up front regardless of amount. If kitchen cabinets are 30K, I get whatever the cabinet shop needs to get that order going, usually 50%, plus other special order items such as granite deposit to hold the slabs, tile, lighting etc..
> 
> ...


And to clarify, fair to both parties doesn't mean me coming out of my pocket to finance their project :thumbsup:


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## Mr Rewire (Aug 30, 2012)

We request 50% down balance at completion. This serves two purposes first it keeps us in a positive cash flow and many of our jobs are booked out several weeks it locks us in with the customer. Accepting CC has made getting paid much easier.


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## A&E Exteriors (Aug 14, 2009)

BamBamm5144 said:


> Yeah around here, not making customers pay a deposit really sets you apart.
> 
> The only thing you should ever be "in" for is the labor. Materials should be on credit with your supplier.


You still have to pay the bill sooner or later


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## 6wheeldump (Oct 6, 2012)

Holy Crap! For that guy to say he doesn't believe in deposits....WOW! 
I have two good points for this discussion. As far as supplier accounts go they are ok, because they usually don't charge excessive interest charges and they don't report on your credit score unless you are late, which helps free up your credit for big loans. If you have a good credit score I would recommend getting a business credit card with cash back or rewards. This way you can pay the card in full every month when the client pays you for the materials and you'll be getting the rewards basically for free. It's a huge bonus for you!
As far as down payment percentages go every state is different with the state license laws. I actually saw a question about this posted on a site with a section to ask a lawyer questions. I'll try to attach a link here but I'm not sure if I know how to do it right. If it's right here is the link.


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## ohiohomedoctor (Dec 26, 2010)

Bamms jobs are usually one day with one supplier. I float one dayers all the time..


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## Robinson_Cnst (Jan 5, 2012)

I take a deposite when the contract gets signed, ussualy enough to cover materials and overhead. I then gather all materials and bring them to the job on day one. If its a large enough job I take another draw after everything is roughed in ect. 

For me I gauge it on the person I'm working for. If I know they have money and will write me a check on the last day then I just take enough deposit to cover my materials. Some people that I know are slow to pay I keep ahead on payment or I shut down. I don't work for free.


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## BamBamm5144 (Jul 12, 2008)

A&E Exteriors said:


> You still have to pay the bill sooner or later


Just saw this. No you don't. Or at least I don't. On every delivery my supplier makes they send out a certified "Notice of lien rights" letter. I tell customers they get this letter so that if I can't pay them because I don't get paid, they can place a lien.

Even if you do get a down payment, it should never be for materials but rather labor. The only time it should be materials is if it is special order.

I've floated big money jobs. All I was ever out was the few grand in labor.

I tell you this. When I meet with someone and the deposit talk comes up I usually tell them we don't accept any deposits and quite frankly, they shouldn't have to pay one. They should be doing business with a well enough established business that the business is financially stable enough to complete their project. (As a note, majority of my jobs are between $7500-15000. On really large projects that are time consuming, I understand draw schedules)


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## Gary H (Dec 10, 2008)

BamBamm5144 said:


> Just saw this. No you don't. Or at least I don't. On every delivery my supplier makes they send out a certified "Notice of lien rights" letter. I tell customers they get this letter so that if I can't pay them because I don't get paid, they can place a lien.
> 
> Even if you do get a down payment, it should never be for materials but rather labor. The only time it should be materials is if it is special order.
> 
> ...


:thumbsup:


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## Gary H (Dec 10, 2008)

I cant sleep without the money down or all of it before I start a job. I got trust issues. Now my dad never gets a depoist on any jobs before he starts, as far as I know. Its been 20 years since I worked for him. I doubt he has changed much.


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## cabinetsnj (Jun 10, 2012)

Down payments help with material costs, and we usually ask for anywhere from 1/3 to 1/2 depending on the client. But I think down payments are also helpful, in that they help solidify the deal.


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## skyhook (Mar 17, 2007)

Sampietro said:


> I guess I am just worried about getting buried if I at least get the cost of material up front their is not as much to worry about in the end. Thanks everyone for the advice


No deposit or 10% method is an easy way to close the deal. It gives people confidence in your company. Next payment can be 40% on starting, demo or delivery of certain materials so you are never out more than you've received. :thumbsup:


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## Tom Struble (Mar 2, 2007)

i take 40%,i'd rather have confidence in them..


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## skyhook (Mar 17, 2007)

I get 50-100% up front because my reputation usually precedes me.


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## Tom Struble (Mar 2, 2007)

thats weird cause i never heard of you:blink:


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## Tiger (Nov 21, 2007)

I didn't read the whole thread but laws vary by state. Even where states limit down payments to 10% guys are going to substantial progress payments.

In Illinois there is no limit on down payments so I usually get 50% minimum. Some very nice clients pay 100% in advance. I recently got a $10k down payment on a $12k service upgrade, and they gave me the final before it was complete.

To the OP if I were setting up a payment for windows I would consider "what if the customer quit at any stage", so the down payment would include the windows and the time to get them delivered, including measuring & sales. If that is 4 hours it would be 4 hours plus the windows. When the windows are delivered get a payment for the installation of half the windows. When half are installed get a payment for all but a small amount as a final. 

Customers generally pay small finals without issue. A huge final payment can be used as leverage.

Back to "what if the customer quits"...if they quit before the windows are ordered, you're out 4 hours but the windows aren't ordered. If they quit after the windows are ordered, you're even. If they quit after you install half the windows, you're ahead. Then you have a small final.


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## skyhook (Mar 17, 2007)

Tom Struble said:


> thats weird cause i never heard of you:blink:


Let's keep it that way. :jester:


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## Builder Butch (Jan 30, 2012)

The way I see it, there is to much risk for to little profit without a down payment. Anything could happen. On the other hand life is full of risk. So I get a quote from my supplier and have them pay the supplier directly. I take the risk on my labor and profit. That way I don't get thier money but I'm also not at risk for materials. On a big remodel or a custom house I have them set up thier own accts with my vendors. In Tennessee the vendor has no lein right unless its been billed directly to the property owner. In 25 years I've had people die, divorce, loss thier job, house flood, catch fire and everything in between. I don't take risk I cant control or I can get around...makes no sence. You will eventually get burned.


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## donb1959 (Dec 9, 2004)

I always ask for 1/3 upon signing, 1/3 at half, 1/3 at completion, I'm not going finance their project for them...ever.


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## ohiohomedoctor (Dec 26, 2010)

I try to leave no more than 10% left for final payment. It makes alot of things better.


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