Kitchen Projects: Required Deposits

      The policy of demanding a deposit gets fouled up when contractors are involved. December 26, 2004

Question
I have been in business for 10 years and on most projects have required a 50% deposit with the balance due upon completion (that's what my contract states).We try not to do much work for contractors for a multitude of reasons, but sometimes find ourselves in a bind when someone I know is building a new house and wants us to do their cabinetry. When we ask who their builder is and know who they normally work with on cabinets, this is where the problems start.

We explain to the customer and the builder that we require a deposit and the typical response from the builder is that the cabinets come out of the final draw and they don't pay deposits. To get around this, sometimes the homeowner will write us a personal check for the deposit and we refund it upon payment from the builder.

We just finished one a couple of months ago that was a nightmare. The job drug on for seven months due to delays beyond our control and now I'm working with another person in the same type of situation. We are in the planning stages of the new house cabinetry and I have mentioned the deposit issue to the homeowner but haven't gotten any farther to this point.

I'm curious as to how others handle this type of situation. We are a small, two man shop that does quality work, but are always concerned about cash flow.

Forum Responses
(Business Forum)
From contributor B:
Simple - we would not work with a contractor or homeowner who refused to pay a deposit. If the contractor is a pain now about paying, wait until the end when you try to get payment.



From contributor D:
Customer gets the first on-site meeting for free. If I am doing design work, they get a few follow-up phone calls to discuss design for free. The next time I see them they are handing me a check for 50% of the work or I don't go.

I will never again purchase material for a job with my money. Don't ask - you can guess the reason. I hate to work with or through builders/contractors. If I can't communicate directly with the client, I don't hesitate to add a few percent to the job for all the crap I know I'll get from the contractor. Specify all the details on paper and have it signed. Any change will cost money. If you are busy, why waste your time with people who give you nothing but problems? State your terms and stick to them. If the builder will not give a 50% deposit for custom work, just ask for full payment up front - you may just get the 50%.

Construction delays happen, but seven months is a nightmare. Been there, too. I have asked for another 25% towards cabinets that I had to store for several months, and I stayed with it until I got it. Why should I be out 50% of my money for something I had nothing to due with? The cabinets were ready to go on time, just had nowhere to go. Take care of yourself - nobody is going to do it for you. You may also tell them you will add a percentage to the total if you are expected to bankroll their project.



From contributor M:
Learn to say no.


From contributor P:
In California, we're limited to 10% or $1000, whichever is less, on signing a contract. One guy I knew was running an incredibly shady operation, with 50% deposits, no completed product, no license, no work comp (with a major table saw accident), OSHA around his neck - the complete mess! What he was finally convicted for (with 18 months in jail) were the deposits.

I don't take a deposit on signing, bill 50% progress payment when materials begin to get cut into a nonreturnable form, drawers/doors ordered, etc. 25% when the job is delivered to the site, more-or-less complete, 25% upon completion of installation. It's been working for me for over 25 years, with very few payment-related issues. Your mileage may vary!



From contributor Y:
Stick with the 50/50 plan! I've only had one builder tell me they couldn't do 50% down with his cash flow. I've done 8 or 10 houses for him and never had a problem. Finished cabinets for him a month ago and he still isn't ready for them on the latest project. I told him last week that I require 50% upfront from everybody but him, because I've never had problems with him. But… he's now put himself in with everybody else because of the way he's messed me up on this one.

I picked up two last week from a builder I've never worked with before. Told him 50% down. He said he'd never done it before but he didn't have a problem giving me the 50%. Stick with your policy. You might lose a job now and then, but you won't lose your shirt.



From contributor J:
If you and the customer are starting at the beginning of the process, the customer has the clout. Most home builders here in Texas permit withholds and upgrades from their standard package pricing.

I would define the deal with the customer in writing. Then have the customer cut the deal with the GC that their deal is with you as supplier. From the GC perspective it usually means he's backing out the price for the kitchen, which most can readily do. And you arrive at a finished but unoccupied space to deliver the product.

If you do this, I would also arrange with the customer the purchase of the appliances so there are no surprises on fit-out.

If you can't get this, then it's probably better to just politely decline.



From contributor S:
Our payment schedule is as follows:
10% to book the shop (up to $2500). This places the job onto our production schedule.
50% two weeks prior to start date. We build cabinets with their money, not ours.
25% prior to installation.
Balance upon completion.

We have been doing this for almost 10 years without problems. The nice thing about the "booking" portion is that it immediately establishes that they have to pay you for the cabinets.

I learned early on that my gut instinct was pretty good. If you don’t like something about the job, graciously turn it down.



From contributor R:
Is that 10% non-refundable? Sounds like what I do, except I just do design/detailing and project managing. It helps to eliminate the "faint of heart/lookyloos."


From contributor S:
Contributor R, by stating that you get 10% up front for design work, you bring up a good point made at the New England Expo by Jim McDermott: Don't leave your place of business unless you are getting paid. He offers clients a visit to his showroom to discuss the project, but he does no design or field measuring unless there is a discussion of how much that part of the job will cost them - no free estimates either. Interesting approach. He feels that the professional way he presents his company qualifies him to do that. I'm trying to figure out how to get to that level.

The 10% deposit I get is refundable. I suppose I could make it the other way, but if someone really wants to back out on a job, I'd rather let them go than have them stick with us and make us miserable for $1500.

By the way, I've had customers book the shop 6 to 12 months in advance with no set price on the job - they just wanted to be on the schedule. Sometimes with repeat customers (who I like working with), I'll not ask for the 10%, just start at the 50%.

I do charge for designs, and think that I will implement some new policies soon.



From contributor P:
I will have the first meeting at the showroom with the client bringing in their blueprints for an entire new house or a simple drawing for one bathroom. After choosing doors, tops, interior packages and anything else, I quote the job. If everything is fine with the quote and the clients' selections, they sign the contract and we get a 50% deposit. If the client has many changes, I get 10% before rebidding, or walk away at this time. This gets rid of any tire kickers. We apply the 10% toward the job total and when all the details are done, we get the rest to get to the 50% deposit.

Our lead times are six weeks, so when the client tells me that they are six away, we put the project into production. As soon as we are completed with production, we have the client come to the shop to inspect their cabinetry and pay their balance in full before it even gets loaded into our trucks. Our company does not install, so this gives us an advantage, and I can do any repairs caused by their installers, and bill them without having to beg for my balance. You cannot go to the Home Depot or Menards and not expect to pay 100% up front before they even order anything, so why are cabinetmakers ashamed to ask for 50% deposits and balances in full?



From contributor Y:
With good preaching like that, maybe we should take up an offering! Pay for it today, and we'll special order it. It should be in within a couple of weeks, then we'll try to arrange delivery and installation. Hope it all works out because special orders aren't returnable!

But for some reason people don't like giving us 50% down to create something just for them. This thread has made me more adamant about requiring deposits. If you're not willing to give me half up front, find somebody else. If they don't have half now, why should I think they'll have it all when I'm through?



From contributor T:
We have strong policies in place on this issue, hard learned over many years.

We too are in California, and are fully aware of the 10% rule. But we are manufacturers of custom millwork, and we are not going to build it out of pocket. We require enough money up front to cover all costs, hard and soft, before anything more than simple shop drawings are done. We get 50% on everything we build with exactly one exception: for a repeat customer we will do a job under $500 for no deposit. That's it. No other exceptions.

We are manufacturers. Home Depot and Lowe's get, as was elsewhere mentioned, 100% in advance. What we are building is fully custom and cannot be sold elsewhere if the client flakes out mid-job. Why would we commence such work with no investment by the client?

We have walked away from what appeared to be very lucrative jobs because of this point alone, and in my experience, if you haven't developed a comfortable relationship with the client, whether contractor or homeowner, by the time deposits should be paid you're going to have some kind of problem along the way and are simply better off passing on the job.

We have a number of mostly residential contractors that are our bread and butter, and they all expect to pay according to my terms.

For what it's worth I have even been able to make this work with commercial contractors, who are notorious for drawing out payments for months and months. I am quite adamant about this and will walk away from a job if the customer makes money an issue, because if it's an issue now it will be an issue later, regardless of how good your work is.



From contributor O:
I have found out the hard way that if the customer wants your service or product, they will put up a deposit. I do a lot of custom sawmilling and specialty woodworking for cedar log homes. It takes a lot of time and money to put these projects together and I do not care who the carpenters are - I deal with the person or persons in charge and if they want my service, they will put 50% down and the remainder in an escrow account with my banker, or they do not get a stick from me. I have no problems - either they take it or there is another project that will. Stick to whatever your policy is… You give in to one person, then it will get out to someone else.


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

Comment from contributor W:
I have been a cabinet dealer for 25 years, and have this suggestion. Ownership/possesion of material changes hands as soon as you take it off your truck and place it in the customer's house. It becomes the new owner's, paid for or not. So the solution is easy - "We are a law abiding company, and in order for us to do business lawfully, we require a 50% deposit to start the job, 50% balance before we deliver it. The customer may withhold the installation fee, until it is complete." You will hold the upper hand throughout with this arrangement. The consumer will not make changes knowing they have already paid 50% and you still have possesion of the cabinets. If they are unwilling to cooperate with this arrangement, it lets you know they don't like doing business lawfully. I always ask this, "Did you move in your new home before or after you paid for it?". I would like to do the same with the cabinets.



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