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Holding deposit for upcoming work5/15
Wondering if anyone has some sort of system in place for taking a holding deposit for upcoming work.
Currently in a quiet patch because I knocked back a few jobs with the understanding we would be busy with other work, of course the jobs we were supposed to be working on are delayed so we have a cashflow issue as we can't take a deposit on those jobs until we start.
I am putting together a plan to ask for a holding deposit from those people who have the jobs coming up in the near future so we can allow time in the schedule and I don't end up in this situation again.
People are always funny about giving any sort of money until cabinets magically appear in their house even thought we spend months prior to that in discussions, preparation, materials and construction.........anyway
-10% of job value as a holding deposit to book a job in xx amount of time advance
Our standard terms.
Would greatly appreciate any feedback or experience with this issue
No residential job goes into my queue until I get a deposit. If there is a pretty long wait, more than 6 months, I ask for 1/3 for deposit, then another 1/3 with work in progress, 1/3 on delivery. If less than 6 months out, I ask for 1/2 down, 1/2 on delivery.
Thanks for your response. That is great, and I can imagine it helps scheduling and cashflow greatly.
I'm in a competitive market and whilst we have a good reputation we are a small operation and price higher than others with the focus being on quality and good service. I just can't see me fronting up to a customer (particularly builders) and saying they need to pay 1/3rd or 1/2 the job cost 3 - 6 months before we are supplying them with anything. Would love to live in that world but I just cant see it happening.
We also require a 1/2 down payment to "secure" a spot on our construction calendar. This is in place for 100% of our private clientele. With our established contractors we may give a little leniency to this policy if they approach us ahead of time for a model or such. I will say that our typical turnaround time is more in the 4-6 week category than the longer time frame that you referenced.
Unless it is a small job with a contractor we have a good track record with, we always get a deposit. The earlier the better. Contractors rarely meet their schedules so we will not usually turn work away either, even if it appears that we will be over booked.
At typical job will be between $25,000 to $60,000 and we like 1/3 down, and if we can show work in our shop, even if it has not been shipped, we will do a progress billing. When we are completed, it is normal for the Contractor to owe us about a 1/4 or a 1/3. Payment is rarely a problem and this gives the owner security as well. Also, we do not hold this deposit in any special account. We do have to pay sales tax on our sales, so we also pay the sales tax as we collect the deposits.
Chip, you can make excuses why you can't get $ up front and continue to live with this problem and others that stem from this practice, or do as most have mentioned here in some way, get $ up front. This is a business, not a game. Business runs on $. If you approach the need for $ up front professionally and rationally, if you are dealing with someone of the same thinking, you should get the same.
Jay asks "Do you get to order a car without $? A mortgage? cruise? air travel? Why is this any different?"
The answer to that is because we as cabinetmakers have a reputation for being notoriously bad businessman, and I have heard at least a dozen stories over the years of deposits having been given and the cabinetmaker either disappearing, going bankrupt, unable to perform, spent money/need more, etc., etc. We have covered this topic before, and it's true that the vast majority of cabinetmakers require a deposit of some kind. Most of the time I don't ask for deposits, but I don't fault those who do. What I do take issue with is the insinuation that choosing not to take a deposit is an excuse for something, rather than a choice.
In my experience receiving a deposit has not prevented any of the negative possibilities from occuring, the worst of which is not getting paid in the end. At most, you are only guaranteeing that you will at least receive 50% of the contract. If a customer decides not to pay you the balance, you're in the same pickle as me.
Not long ago there was a poster here who mentioned how much more eager customers were to make decisions when you refused their money until those decisions were made. Although that's not my policy either, I thought that was very intuitive. Which cabinetmaker do you think looks more confident and professional, the one who casually dismisses your deposit until you can prove you have the ability to make timely decisions, or the one who desperately asks for money 6 months in advance in the hope that they can survive until your project comes around?
I work almost exclusively with contractors rather than homeowners. When I work with a homeowner, I too receive a deposit for all of the reasons that have been laid out here. But my terms with a contractor are no deposit, progress payments monthly, and from an accounting standpoint it is far easier to invoice for work produced than to try to force any sort of benchmark system that may or may not be provable.
Most importantly, in my experience the moment you take money before anything is built, the contractor has all of the control. They will wield this control in a ruthless manner from start to finish and never relinquish it. Conversely, when you have performed the work, performed it well, and there are clear terms about when you expect to be paid, you are the one in control. If your services are unique and in demand, you hold the position of strength. Slow payment will not be tolerated. Partial payment will not be tolerated. We have given them absolutely no excuse not to pay us in a timely manner, so any hint of it tells me there are other underlying problems within their organization. Ask the job superintendent what those problems might be and see how fast you get a check.
Any fly by night contractor and seedy homeowner can come up with the down payment. It tells you nothing about them. And frankly, you shouldn't need it. A slow paying contractor after you've done the work and the work has been approved and for which you know they've been paid by either the bank or the homeower...now that tells you something.
Thanks for the in depth responses. So many great points are made.
this stood out for me "If you approach the need for $ up front professionally and rationally, if you are dealing with someone of the same thinking, you should get the same. "
and DS point about the contractor wielding the power when money is paid.
After letting this advice sink in I had a look through my books and categorized the personalities.
Thanks for the advice. I'll put it into play.
I know a lot of shops ask for a deposit before anything is started and some amount of money at or before delivery of cabinets with the remainder to be paid at completion. How do you deal with it when the contractor or homeowner states that the bank needs to see the cabinets in the house before they will do a draw from the construction loan? I know banks will give out the deposits but its the amount of money that is due at or before delivery that I am asking about.
This is a fairly simple one for me. I separate cabinet cost from installation. Cabinets are 100% upfront at the time of the order, just like how they are purchased at the big box stores or other similar dealers. I do the same thing with any other special ordered materials for a job.
Installation can be on whatever terms you wish, but I would suggest an additional deposit to "secure a spot" on the schedule.
Requiring deposits to eliminate or reduce risk is a policy decision.
Needing deposits because your slow and have no cash flow is a separate issue. If x% of a deposit is OH and profit during the project and we take 50% a year before we spend a dime, if the $ is gone when the projects starts how is the project funded?
A business should have a line of credit for operating and project costs. Choosing to use it to finance projects is policy.
As for the bank, they don't want to finance something that they can't touch, but they will based on the who the loan is for. Just be firm that you require deposits for one of a kind, made to order, non returnable merchandise.
We take a drawing deposit 1st