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Deposits for spec home cabinetry4/14
I have been building custom cabinetry for a custom home builder for three years. The payment schedule we agreed to was the same I have for my residential clients. Average project of 40k with kitchen, several vanities, cabana and bar or wine room. Very modern flat slab cabinetry with floating vanities in high gloss or supermatt melamineís and a lot of textured melamineís.50% deposit and additional 25% on door production. We are often working on several homes at once and have an additional warehouse to keep finished cabinets till homes are ready. Often installing before a/c or electricity. We get the last 25% when install is finished even though custom panels will only be installed later when integrated appliances are installed.
If you cannot afford to self fund they the other option is to drop him like a rock. He is using you as a bank but you aren't getting any interest on his loan from you.
15 days isn't that bad, but you might have to agree that installation is after the cabinets are installed and the appliance panels are a separate payment since that part isn't under your control and he can push this out pretty far to keep from paying your last payment.
Also 25% at the end is too much. 5-10% is more than enough to leave at the end.
I would never in a million years install with 75% of the money I his hand. It's never easy bit I'd tell him to go pi$$ up a rope. If he can find someone else to do what your doing with 25%down I'd be shocked.
25% will cover the materials right? That means you finance the labor. I didn't do any spec house work, but did a little commercial. Those general contractors are horrible. They always went past pay dates. They usually retain 10% until the whole job was completed and all punch lists were signed off. That means repairing other trades damage to your work weeks after you leave. You just have to decide if you want the work or not. He'll easily find someone else to do it at his terms.
50% deposit before any work starts unless the job is big, that usually is over 75K. Then it's usually 1/3 or so. Our usual contractors know this and don't argue. We are not a bank as others have stated. Materials aren't getting any cheaper and neither is labor by any means. Don't finance the job yourself as it could go bad really easy.
have you ever had any problems getting paid by him before?
i would be hard pressed to turn away 50% of my business over something like this. yes, getting yanked around with a payment schedule that was working for you, and was known to by him, isn't any fun, but what state would your business be in if he you dropped him?
with a good working relationship, i would figure out a way to come up with a compromise. maybe your standard payment plan on contracted jobs and something in between your existing and his new idea on spec homes. you don't want to be the bank and he doesn't either.
and in the meantime, try to figure out a way to make his 50% of your sales into something like 10% so you can walk away from him (or future him's) if things go south.
What are your margins on his jobs? If his jobs are low margins, you cannot do it. Your website says that you are in Florida. Florida is booming right now. There is a history of up and downs everywhere, but I think Florida is even more so. If you didn't get paid on two jobs, how would this impact your business?
Having one account that represents 50% of your business is not good. My experience with Spec builders is not good. They tend to not have any loyalty. You will do better with Architects, Designers and Custom Home Builders.
Just to clarify. This client is a custom builder. Homes are in 2million and up range and are often sold during shell construction or at other stages. Sometimes I end up working with builder and client so they can pick their own finishes. You are all right about not having so many eggs in one basket. Although market here is excellent, itís mostly in these type of homes. Itís difficult to get entry into new builders as they have their preferred vendors. I have a strong presence on Houzz which is how I met this builder and he has also sent his friends and family my way as well; at my financial terms, and they are very happy with the work. He is totally trustworthy and good for the money and not a flyby nite operation. History and community ties from Canada where we are both from and we trust each other. I have sufficient funds after a dynamite year and will try the next two homes which total a little over 80k of cabinetry with the 25% deposit and see how I can manage and will negotiate again after. If he gets paid by bank after cabinets are installed, I will verify if thatís after initial installation even though certain parts arenít complete. We donít know stall toe kicks till after counters are in and appliances are installed for example as they are always integrated appliances with toe kicks covering dish washer etc. same with subzero integrated appliance panels for wine bars, freezers and fridges. These are not delivered till end of total house is ready.thanks for your comments to date, Harold.
We work in high end custom homes also. We get 50% before work is started then 40% at delivery and 10% when it is done. Custom home builders are normally working on construction loans. The bank will give them a draw on the cabinet deposit when they ask for it. Once or twice the bank has wanted to see the cabinets inside the house before they will do the 40% draw. Even if you happen to walk away at this point the builder can find someone to install for less than 10% of the cabinet cost. Let the bank be the bank. We have materials to buy, labor, and overhead. I am sorry if the builder can't get the money we still have to pay our bills and so should they. If he really likes your work then I don't think that he will drop you. Also most other trades only finance their labor. Plumbing pipes, framing and that stuff is in the house budget and gets delivered to the job site paid for by the builder. Their only overhead is their labor. I would talk to him about this. You have to carry a lot more on your back then any other trade.
If he is using a bamnk he should be billing every month, you may need to inusre work that is complete but the bank should authorizes actual payment for actual work and materials plus shop drawings and immobilization.
Every bank and area is different; learn the rules and invoice format and see if it works for you.
Banks don't like parting with money they can't recover if its not on the real estate. They are used to special terms.
with some of the bank comments - i was a custom home builder from 02-07. we were allowed four draws per spec build. this would cause us to keep a lot of money in the bank to float payments due in-between draws. we could get extra draws, but were charged for this. also, these draws were figured on an estimated build cost, not a sell price, so we didn't collect most of the profit until after the home had been sold. i'd guess things aren't exactly the same these days, but the i'm sure they haven't gotten more generous for the borrower.
also, ryan is correct about how most trades work with builders. typically, most of the materials are provided by the builder, with hired labor to put it together/use it. you could argue this point to be treated differently from other trades he's comparing you to.
One of the major difference is cabinet maker purchase materials delivered to their shop and fabricate them. On a job site whether the sub is supplying materials or not, they drywall, lumber, concrete, rebar, roofing, plumbing is delivered to the site and then billed.
The material is onsite and most the material supplier pre-lien and the bank is aware of it.
If we allow suppliers to pre-lien materials, they get paid when we get paid, this is useful on large jobs as you don't have to tie up your credit.
We don't do this very often but for slow pay high dollar projects its useful.
I agree with Ryan, the google, and Alan F. the contractor should realize (or at least have a discussion with him) that you are different from all the other trades on the project. You are a supplier/provider of goods and services. Most of the other trades are labor. Your outlay of materials exceeds any other trade up front. 15 days doesn't sound like a lot until you verify what day is considered "installation complete".
Harold, I know you'be been working this business for many years. You've seen how these things work. On spec homes the contractor has a very narrow window to get the project complete or the bank starts squeezing the contractor with interest payments, the contractor squeezes his suppliers and subs...and the world goes round and round.
I picked up the 25% deposits for two homes today and discussed the issue with the builder and his mom( this is a family business) I have been working mostly with the mother as we do designs and colors together and she values my advice, the other trades get draws that cover the materials and labor and they recognize that a draw system would be fairer. Not as big a deposit as I would have liked, but I have other designers that I work with that are larger dollar projects for two-three bedroom condos that are in the 80-100k range per project where I go get sizable deposits and my daily bank balance is in very good shape. Have done over 20 homes together without a hitch and they sell fast, and I am always available when needed and they pride themselves on keeping same trades for years and we all work well together and know each other. Found a happy medium for now, I am 68 years young and not looking for major changes or even to grow too much as my family time and other interests are more important to me, and would not want to start developing another major account like this at this point., thanks for all the input and advice as always and always looking to reciprocate, Harold.
If you trust him, raise your price and who cares. Easier customers should pay less.
Finance the short cost until you're accustomed to carrying a bit more capital on hand, then it's just another work week.
Make it pretty clear you don't like the idea of gators choking on his tool belt and you'll be fine.
This is why I do not work for con-tractors!
He is not a con-tractor, these are great people with forward vision that are building beautiful homes and providing a great living for me and many other trades. I have never been shafted fir even one penny and was presented with these new changes before accepting me t two homes. Business is business and they have negotiated in good faith and we are off and running with another 100k of work that is way less complicated than individual private clients but has other tomevoriented challenges, I have 100k in account at end of year partially because of them and just wanted best advice on dealing with changes. Thanks guys for the advice and support. Harold.
There are few reasons to require a deposit
2) Some customers you don't trust so they have to pay in advance.
3) You have a policy that requires deposits and you are firm on it.
Then there are reasons that don't make sense to me but are valid
These two items make me wonder if a business is making money, in theory a shop with increasing sales that is on the cash method of accounting and always requiring deposits could lose money yet always have money.
We do work where on average we get paid at about 75 days from date of invoice not including retention that seems to take 4-12 months to get paid.
Lets assume you can fund the work, then there is the cost of using either your capital or borrowing, lets say 7% in today's climate on a line of credit.
There is some risk on the payment schedule but lets assume you have lien rights so that minimizes some of the risk.
Then there is they have always paid you so that reduces risk.
To me, that they are discussing payment in terms in advance means they want to make sure you can work within their terms, which is much better than expecting the deposit and not getting it.
We take deposits on direct work as a matter of policy and always in cases where the product ships out of state or we don't install just because of all the lien tracking.
Progress billings for work in place are another avenue that can reduce deposit requirement and keep payments flowing.
Best of luck, they seem like a good customer.
Alan F. Thanks for the great points. Straight facts without the suspicion and fear.
We bill everyone including school districts, churches, gcís, etc for shop drawings and material draws. They all pay it. I billed Starbucks and Texas Roadhouse through their gcs and they paid it.
Anything custom is 50 percent, period especially residential. Stone or quartz does not come into my shop without 50 percent up front. Period.
Get some more clients. Do not paint yourself into a corner. Get a diverse revenie stream. Believe me, you are doing the builder a huge favor taking on his work.