# Payment Terms



## housedocs (Jan 10, 2005)

Just wondering how you guys deal with payment terms? I've always set-up my contracts in 3 payments. 1/3 down at contract signing, 1/3 at about the half-way point of the project and final 1/3 upon completion of all specified work.

Reason I ask, this past week there's been a few pieces on network TV, interviews with supposed experts on in the arena of homeowners dealing with contractors. The two I saw both were sitting there recommending to home-owners that they should never pay anything down until a substanstial portion of the project is completed. 

In the years that I've been in business (and I'm still a babe in the woods compared to many of you) the only time I've gotten stiffed by a client was when I didn't follow my normal course of action.

I noticed on someone's site, think it was Minn Const that they have their terms right there on the website, called for 40% down. Anybody else have that kind of pricing info on their site?


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## IHI (Dec 25, 2004)

The past 4 years I was doing the 1/3, 1/3, 1/3 payments and found more and more homies were all too quick to not pay when everything was due and I'd have to fund projects out of my own pocket to completion and sometimes would go upto 3 months before ever seeing final money. They were happy, permits were signed off on, just plain bad business on some homies parts and that added up after awhile.

This year I'm trying something totally different. Decided to use the homeowners money to fund their project...new concept huh? LOL, I'll just use garages as an example. I now require money up front at time of siging before concrete is placed, money up front before I order ALL garage material and have it delivered, then half labor after structure is erected and water tight with building wrap and tar paper, then remaining balance after final inspection. I've been explaining to all my customers that ask about this how I've been burnt in the past and all have understood. As long as open communication with the homeowner is established I think that in itself stops alot of problems. When add-on's or change orders are implented we will note and initial on contract and I'll fund those until time of final payment, that way I'm not like the teenage kid always asking mom and dad for $20 for this or $50 for that. 

Seems to be working good thus far and making life alot easier...hellava lot less overhead on my part since projects are now basically paid for as we go...less bill paying at end of month also. There will always be exceptions to the rule as with anything, but if this keeps working out this good I've found my new deal.


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## Grumpy (Oct 8, 2003)

Typically 1/3 down and final upon completion. If custom or non returnable items need to be ordered to complete the work then I make sure my downpayment AT LEAST coveres the cost of those items. If a job is a large job that takes longer than a full week, or I think the home owner is shady, then I require progress payments.


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## DecksEtc (Oct 27, 2004)

I do 30% due at signing (work is scheduled then), 30% when all materials are delivered to site and the balance of 40% due when job is completed. This schedule works best for me and my customers.


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## Teetorbilt (Feb 12, 2004)

30% down and draws according to the scope of work.


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## Mike Finley (Apr 28, 2004)

It depends on the size of the project. $1500 and under I do 10%/90% or nothing at all. Larger projects I will tie the payments into a progression schedule with no more than 10% due upon final.


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## red_cedar (Mar 30, 2005)

Depends on the type and size of work.
On a metal roof for example. reroof or tearoff. I get about 2/3 thirds of the material costs on signing. If it is a few monthes away, I hold onto the check paper clipped to the contract until I order the material, the other 1/3 on material delivery, with material waiver from manufacturer. Then the labor is split either 2 or 3 ways, begining with job start and ending with succesfull completion. There is a strong trust factor involved.
Now say if it is a asphalt shingle reroof, 1/2 and 1/2


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## Grumpy (Oct 8, 2003)

Mike Finley said:


> It depends on the size of the project. $1500 and under I do 10%/90% or nothing at all. Larger projects I will tie the payments into a progression schedule with no more than 10% due upon final.


$1000 and under I usually don't ask for anything. There was a job I got awhile back when I first started my company and had no refrences. We were installing 4 windows and the customer was hesitant because I had no company refrences. I told her to hold payment until the job was done and we inspected it together. Sold!


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## magnum (Jan 29, 2005)

Projects up to 5k 50% upon starting and then balance, 5k to 20k I do thirds, 20k and up 10% deposite 10% retainer and break up payments in between.


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## mtp (Feb 13, 2005)

commercial:
nothing down then monthly based on % work complete on the schedule of values


residential:
draws as we go nothing down


the worst at paying are property managers


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## IHI (Dec 25, 2004)

miketheparrothe said:


> the worst at paying are property managers


AMEN BROTHA!!!!!

Only took me until the end of summer to reiceve my snow plowing money from a apratmemnt complex organization, the parent company is based out of Chicago so everything is done by fax/mail. Made it a point last fall to tell on iste manager I will not hesitate to plow shut every parkling lot if I do not reiceve my invoice payments within 31dys of billing. This year got paid within 30 days everytime as schudeuled


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## George Z (Dec 23, 2004)

I am just wondering:
we have all explored ideas of making payments as easy as possible 
for our customers so we can differentiate our companies from the
competition. Credit cards, financing etc. come to mind.
When it comes to deposits, all this disappears and we all insist on
sizeable deposits (in the thousands mostly). At the same time most
consumers groups advise against it. Is it possible a some leads did not 
become jobs because of our insistence on a large deposit? I agree 
about cashflow but what if...


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## Grumpy (Oct 8, 2003)

I know a few companies that don't accept deposites. Keep in mind they are specialty trades dealing direct with customers and not GC's. The difference is typically the $$$ of the contract, being that a specialty trade might replace your roof for $5,000 and a gc build you a new home for $500,000.

I'd like to be financially stable enough one day to do work for little to no discount but that time is just not here. I just couldn't take the financial hit if a few customer didn't pay one month. This has never happend but I always plan for the worst and hope for the best.


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## George Z (Dec 23, 2004)

Grumpy said:


> I know a few companies that don't accept deposites. Keep in mind they are specialty trades dealing direct with customers and not GC's. The difference is typically the $$$ of the contract, being that a specialty trade might replace your roof for $5,000 and a gc build you a new home for $500,000.
> 
> I'd like to be financially stable enough one day to do work for little to no discount but that time is just not here. I just couldn't take the financial hit if a few customer didn't pay one month. This has never happend but I always plan for the worst and hope for the best.


What about a "progress payment" when work starts, or after materials arrive. 
It takes away the risk factor for the prospect and the only risk for the
contractor is not going through with the work after scheduling.


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## Grumpy (Oct 8, 2003)

Yes it takes away the risk factor. 

Progress payments? I Only ask on large jobs. These are jobs that require multiple crews or will take longer than 4 days to complete by one crew.


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## donb1959 (Dec 9, 2004)

George Z said:


> I am just wondering:
> we have all explored ideas of making payments as easy as possible
> for our customers so we can differentiate our companies from the
> competition. Credit cards, financing etc. come to mind.
> ...


The 1% of contractors that take the money and run make the other 99% look bad. It's well meaning, but ill informed consumer advocates that sway public attitude on this issue. There are cash flow issues in the contracting business to consider. If your'e buying a home you need earnest money, a car a downpayment etc..

I require 1/3 down to scheadule and retain. Then generally the rest upon compleation. Unless the customer seems to likely be a PITA in which case a 1/3 draw at the half way point is required. All this is spelled out on my site and on the contract. Ofcourse I always point out that I'm also insured and incorporated.

But if a customer scoffs at the 1/3 down, I thank them for their time and move on.


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## Grumpy (Oct 8, 2003)

donb1959 said:


> But if a customer scoffs at the 1/3 down, I thank them for their time and move on.


 Amen, sometimes ya gotta walk... 

After all IMO this is a symptom of a larger problem that you can't fix.


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## bergenbldr (Apr 23, 2005)

on large jobs we get 10%at signing and 20% at start. small jobs 30%at signing. special order material min 50% before order placed ;some custom items we require to be paid in full.


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## shopdust (Apr 9, 2005)

From the cabinet making world re: deposits, "Thou shall never cuteth thine own wood. See ye the 50 % deposit".
I've found this to be be gospel, makes the customer 'committed'.


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## Bjd (Dec 19, 2003)

I will go along with the 30-30-30 and or the 50-50, but to go into progressive payments is a nigthmare.

I have not tried it, but a buddy of mine did and he had a real tough time with getting full payments.

I dont know about you guys, but when someone is holding my money for a year or so I tend to get a little worried. Say he has some one over and they start to cretique our work, you know they should have done this or that.

Next thing you know, there holding back until you make repairs.

BJD


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## Jason (Apr 29, 2005)

I usually do 1/3 down and rest upon completion of project. If the total cost of materials is more than 1/3 down, I will request more money.

I almost never start a project with materials coming from my bank account.


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## ProWallGuy (Oct 17, 2003)

Teetorbilt said:


> 30% down and draws according to the scope of work.


I agree with Teetor here, depends on the sizw/scope of job.

My payment schedule, ripped from a contract for an 'average' job:

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.


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## ProWallGuy (Oct 17, 2003)

More explanation on the above term:


> REMAINING BALANCE DUE BY THE END OF BUSINESS ON THE DAY OF COMPLETION:


Keeps the customer informed that I don't want to have to come back to get paid, it wastes my time. Hence this line:


> 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.


This next part is important too, some jurisdictions are notorious for being easy on homeowners and hard on contractors. A capable construction/contract lawyer in your area will know these details. No matter where I do the work, if things go bad, I prefer the home-field advantage. Plus, it forces the homeowner to come to your part of the world to file a complaint, and many are too lazy to do it.


> THE UNDERSIGNED AGREE THAT EXCLUSIVE VENUE AND JURISDICTION OF ANY ACTION SHALL BE St. Louis County, Missouri.


A gentle yet firm reminder that we don't play those games:


> PLEASE PAY PROMPTLY. WE ADHERE TO MISSOURI LIEN LAW STATUTES AND PROCEDURES.


Also important, will allow you to recoup time lost chasing a deadbeat non-payer:


> THE UNDERSIGNED WILL BE RESPONSIBLE FOR THE COSTS OF COLLECTION OF ANY UNPAID BALANCE, INCLUDING A REASONABLE ATTORNEYS FEE.


Hope that helps.


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## Nathan (Jul 21, 2003)

Helps a lot. I might edit mine after seeing yours.

Thanks!


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## Mike Finley (Apr 28, 2004)

Is the collection of attoneys fees actually doeable? I was just reading that those fees are often un-collectable in most cases. The article was about the lose/lose scenario of going to court to collect fees in most cases due to the costs involved and not being able to recover them except in special cases. I believe it stated just a couple of states that would allow for collection of attorneys fees, and then went on to explain how arbitration was a better way since collection of attorneys fees was possible.


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## ProWallGuy (Oct 17, 2003)

Mike, I honestly don't know, as I've never had a deal go that far south before. But my lawyer did advise me to put it in there, so I did.


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## Grumpy (Oct 8, 2003)

Mine says "all fees which arise in attempts to collect balance due." or some crap I am paraphrasing off the top of my head.


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## 6stringmason (May 20, 2005)

Well thanks to all of your fella's words of wisdom I have adopted a new payment plan. I had a couple problems of a GC not paying on time. I do masonry work on new homes and some remodel. I have the customer or GC place orders for all the material themselves. I also ask for %50 on jobs $2-$10k and anything over I require 1/3,1/3,1/3. It seems to be working well. Thanks fellas. You guys are a wealth of info on this site for a new business owner. Appreciate all of the great info and stories.


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## AAPaint (Apr 18, 2005)

Hey 6string...Might I recommend you, at some point, take over the purchasing of materials? 

You are losing valuable profit for your business by allowing the customer's to purchase the materials. I'm sure alot of the people here would agree with me. You should purchase the materials and add a 15% mark-up for delivery. I purchase my materials at my discount rate, then charge retail price + 15%. 

For one thing, it leaves me in control of what gets used on the job, how much is purchased, and where it's purchased from. I keep my suppliers happy by purchasing large quantities of thier products, and they keep me happier by lowering my prices further for the more I buy! 

It's more professional in appearance when you say "all materials included" as opposed to "here's a list, get me this"....You also won't have to worry about the customer screwing up and purchasing the wrong stuff, which as a painter could be costly with custom tinted paints. 

I'm trying to help you realize a greater profit here....so try it out! :Thumbs:


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## RMconstruction (Jun 5, 2013)

*Just accept credit cards*

Has anyone though of taking credit cards? This way the money can be held electronically and you don't have to chase people around. The customer can be assured that they get a quality product because they can always just cancel the payment. I've been doing this for years. Thoughts?


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## Calidecks (Nov 19, 2011)

RMconstruction said:


> Has anyone though of taking credit cards? This way the money can be held electronically and you don't have to chase people around. The customer can be assured that they get a quality product because they can always just cancel the payment. I've been doing this for years. Thoughts?


I don't think they can just cancel the payment as easy as you say. Can you imagine? What would keep me from buying a $3000.00 flat screen, and when I get home with it, "just cancel the payment". There are laws that prohibit this.


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## RMconstruction (Jun 5, 2013)

Californiadecks said:


> I don't think they can just cancel the payment as easy as you say. Can you imagine? What would keep me from buying a $3000.00 flat screen, and when I get home with it, "just cancel the payment". There are laws that prohibit this.


True. I still think that using credit cards simplifies payment terms a lot because customers usually want to delay payments based on how much money they have (or don't). If someone has $100 cash in their wallet that's all they're going to spend but if you let them use a credit card with a $10,000 limit on it you've truly opened up your business potential.


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## rrk (Apr 22, 2012)

Californiadecks said:


> I don't think they can just cancel the payment as easy as you say. Can you imagine? What would keep me from buying a $3000.00 flat screen, and when I get home with it, "just cancel the payment". There are laws that prohibit this.


What they can do is contest the charge, then the money is held and you cannot use it or if it was already transferred they can freeze your account and freeze the disputed money in your bank account.

It can take months to sort all of it out and you cannot go after them for additional fees.


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## Calidecks (Nov 19, 2011)

rrk said:


> What they can do is contest the charge, then the money is held and you cannot use it or if it was already transferred they can freeze your account and freeze the disputed money in your bank account.
> 
> It can take months to sort all of it out and you cannot go after them for additional fees.


That's only if your creditcard company is your bank. If its someone like Costco they have no power to freeze an outside account. The creditcard company can put money into my account but after its in there they can't touch it, without a court judgement.


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## rrk (Apr 22, 2012)

you should double check that, once they are linked to your bank for deposits, there is a timeframe where they can claim ( freeze ) their/your money. I Know someone who had this happen to them, it was called a chargeback? I think


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## mudpad (Dec 26, 2008)

I guess I have been doing hard bid public work for too long. I don't understand why customers should be expected to put out up front money. You wouldn't do this in any other business. Why should the customer be required to provide the contractor's working capital? A 30% down deal would not give me a warm fuzzy about a contractor.


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## tyb525 (Feb 26, 2013)

HO's like to screw contracters over more often than commercial customers I think...


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## Calidecks (Nov 19, 2011)

rrk said:


> you should double check that, once they are linked to your bank for deposits, there is a timeframe where they can claim ( freeze ) their/your money. I Know someone who had this happen to them, it was called a chargeback? I think


That would be the time they put the money on hold. After its processed its not theirs. I do believe its something like three days on hold. Just like when you go to a gas station and put 20 bucks in your tank with a creditcard, some stations will put a 100.00 hold on your account until its processed. After the money is processed I do believe its no more then three days they can't touch my account. Can you imagine if I own a store and sell you a tv and you can grab my funds anytime by just saying I contest it? I guarantee people would be screwing merchants left and right.


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## Calidecks (Nov 19, 2011)

mudpad said:


> I guess I have been doing hard bid public work for too long. I don't understand why customers should be expected to put out up front money. You wouldn't do this in any other business. Why should the customer be required to provide the contractor's working capital? A 30% down deal would not give me a warm fuzzy about a contractor.


Its illegal in Cali. You can't take more then 10% or $1000.00 whichever is LESS. I don't take any money up front. I will take a draw at framing completion, but by that time my customer usually has a good idea in not going to burn them. Not to mention I leave 5 - 10,000 dollars worth of tools at their home.


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## Morbidzero (Aug 5, 2013)

mudpad said:


> I guess I have been doing hard bid public work for too long. I don't understand why customers should be expected to put out up front money. You wouldn't do this in any other business. Why should the customer be required to provide the contractor's working capital? A 30% down deal would not give me a warm fuzzy about a contractor.


Really? When was the last time you got something without paying upfront? We are not a financing company to be covering the cost for a job only to get screwed once it comes to paying.
I believe we should at least get paid the material and labor for a job once it ends and the final check for profit on the appointed time once the Job iis done.

This comment could only ce fr a naive person who has never been screwed by a client.
I did the interior work for a 12 story building in la a few years back only to have the client go bankrupt at the end of the job, we ended up losing 3.5 mill on that job. Since then request request to be 90% paid by the job completion and the 10% that's remaining within a month of the job being done.

Idk if its the fact i work commercial and most of you work residential and directly for the HO but that's my two cent regarding that subject.


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