Appropriate job deposits

      What percentage of the price on a job is it okay to ask for up front? September 2, 2002

Question
How do you determine the proper amount of deposit on a job? I usually ask for the cost of materials as a deposit. I work by myself and cannot afford to take any type of financial setback.

Forum Responses
From contributor C:
We have a two-person shop. We're brothers and partners and have been in business for just over 18 months.

We started out by asking for materials. Then we started asking 50% and now we're considering 75% due to cash outlay for materials, plus you still have overhead and payroll to consider while you are working on that job. I think that would be reasonable. I think Lowes requires 100% up front to order production cabs!



From contributor P:
I never met anyone that cared how much money was in my bank accounts. It is up to the business owner to bankroll the business by cash or loans.

It is normal to require a deposit for custom work. Half for small jobs, maybe a third for larger jobs. I would walk away if someone were to ask me for a 75% deposit on anything. It's very unprofessional to pull the sob stories on customers. If you need more money to get ahead, get a loan or work more hours to catch up. And don't piss away the company operating money on things you just want. That comes later when you have more money. That's the way businesses start. Bypassing the hard work makes you a con man. That's convincing people to pay more than it's worth. Profits are made by selling products at market rate, and increasing the efficiency of your production methods.



The California Contractors Laws require that you only collect $1000.00 or 10 percent, whichever is less, as a deposit. You can schedule periodic milestone payments, however. If you specify milestones, be sure to specify the start of rather than the completion of an operation. It is way too easy to not approve of a completion of a task.


From contributor C:
Contributor P, you stated, "It is up to the business owner to bankroll the business by cash or loans." That is one approach. Deposits also help me weed out people who are serious about the project.

You stated, "I would walk away if someone was to ask me for a 75% deposit on anything." That is your right. I use the deposit as a qualifier. Yes, I could place a lien on your property after it's done and it's too late. If you wanted me to build you an $18,000 kitchen and didn't want to pay a 50% deposit, I would walk away.

You stated, "It's very unprofessional to pull the sob stories on customers." I never discuss my business matters with customers. I don't make excuses for my deposit requirements. That is my right and my terms.

You stated, "If you need more money to get ahead, get a loan or work more hours to catch up. And don't piss away the company operating money on things you just want." I don't piss away my capital. You certainly make a lot of assumptions just because you have a differing opinion on how a business should operate.

You stated, "Bypassing the hard work makes you a con man. That's convincing people to pay more than it's worth." Which hard part are you talking about? The hard work of obtaining larger lines of credit because you like to take on work for small deposits? Asking for a 50% deposit makes me a con man? I deliver on what I promise and try to exceed my customer's expectations.

How do you theorize that a 50% deposit devalues a person's product or service? Increasing deposits may actually increase your bottom line if you are using a line of credit to float your business overhead month to month. But you are right, the market will determine success. If your deposits are too high, the market will respond accordingly.



I have been getting 50% up front on all jobs for the last 3 years. I also give a tax discount on the job if a customer wants to pay the whole thing up front. I know as well as you do that it helps to have working capitol.


Here's how I do business, and have been for the past 15 years. 60% at the execution of the contract. This enters the client into our production schedule. 30% at the completion of construction and prior to the application of the finish. At this time, we encourage the client to visit the shop and make an inspection. 10% upon completion and prior to release to the client's shipper.

I have a small woodworking company that specializes in high-end residential projects. Never lose sight of the fact that we are cabinetmakers and not kidney surgeons. This is a pure luxury and if you want luxury, you have to put your money where your mouth is.

We have never lost a client over a deposit payment. In fact, anyone who can afford our work is a successful businessperson and only respects our contract terms and thoroughness.



From contributor P:
It would seem a deposit will max out at 50% - 60%. Your material costs should not be over 25% - 30% or your bid is way off.

I have worked with several cabinetmakers over the years that have lost their business because of one customer that did not pay at the end. No lie. No money to sue them.

And I have seen many con men in action. Two jobs nearby, that are current. The contractors decided that the bid was messed up, so no money left to complete the job. So they packed up and left the customers wondering what the hell happened. And no money to sue the contractor with.

So it goes both ways. It's a fine line a businessmen walks to run a shop successfully. I've worked for millionaires. It's nice when you can just bill them once a month and you know the money's coming. But you have to work with the regular folk and meet them somewhere in the middle. The less a client knows you, the more wary they will be of you. Remember, you want their business as well as future references. Word of mouth is a cabinetmaker's best friend.

And try not to compare your product with manufactured cabinets. Most small shops I know don't spend anything on marketing. But the pre-designed and built cabinets need a very large budget to sell to the public. Different deal - it's like you building 10,000 chairs, and then having to hit the streets to sell them. Custom work is pre-sold.



One thing we have done is take a 25% deposit to get on our waiting list and then the rest of the deposit is due three weeks before we begin. At time of delivery, payment is due, minus installation cost if we are doing the install. This way they get their product and we get our money. This can change somewhat with people we have worked with before, but we always get a deposit.


I keep it simple - 50% upon order, 50% on delivery. This is for residential. I've done several small jobs just straight due on delivery and haven't had any problems getting paid - it cuts my workload any time I can make a single billing. On small jobs, that time is worth more than having a couple hundred more in the bank for a few weeks. I'm under a relentless time crunch, but the cash crunches have been pretty short.

Commercial jobs have varied from 50/50 to net 30 after the GC got paid (that one brought on a major cash crunch and necessitated an additional short-term loan).



To all those who want to bankroll your clients, I wish you well, but we all know you are going down eventually. Don't tell the new guys (and gals) that they should be ashamed of asking for and getting a healthy deposit. Last time I checked, this was still a free market economy (with the possible exception of California), and it is up to the consumer to determine what level of comfort they have with the amount of the deposit they will part with. Retail stores operate on the idea that if you don't buy the product someone else will. In this business every job is custom, designed to the client's specifications, and built with materials, some of which cannot be returned, or can only be returned with a re-stocking fee and shipping. Deposits are absolutely necessary, are common business practice, and anyone who thinks that they are not is in for a very rude awakening. Just try the courts once to get the special order re-stock costs back out of a job where the client decided to back out, and see how far that gets you.


The comments below were added after this Forum discussion was archived as a Knowledge Base article (add your comment).

Comment from contributor A:
Any work that I do that requires installation will require a 50% deposit at the time of contract signing, 25% when work is started and the last 25% after installation of the cabinets. Work that does not require installation, ie. bookcases, desks, tables, requires a 50% deposit at contract signing and the other 50% at time of delivery. I always call two days before delivery to set up a time for delivery and to remind them of the amount due. So far I've had no poblems getting the final payment.



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