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100% payment upfront2/22/18
Each year we tend to pass on a lot of work and are able to cherry pick the folks we want to work for. Having said that we have noticed even our cherry picked clientele and contractors have been later and later on payments. Both due to jobs running behind and the financial repercussions of that for the contractors. It is not that they are unhappy with the product, they love it, but their cash flow just stinks.
We are fortunate that we can do this and it does not hurt, it is simply an inconvenience. But we simply do not want to. Having recently begun a 7.5% discount for payment upfront in full, we are seeing good results, but it is early. But so far it seems to be a good incentive for our clients so far that they are willing to take us up on. Having a stellar reputation helps and having increased prices 10% at the start of the year we are still making a couple points over last years pricing.
Is anyone else doing this? Do you see any long term pitfalls coming my way? We did this more on a short term basis but am thinking of expanding it to a standard policy.
We get 100% on most smaller work where we are competing with retail/wholesale suppliers who operate like any other store front. You walk in, place your order (or special order) you pay, and when it comes in you pick it up. We do a bit of commercial furniture type items where customers are getting prices from us, as well as online sources, and if we get the work we expect to be paid just as they would if they ordered from the mail order/internet company that has a 2-4 delivery.
For us that isnt going to work in the world of feeding commercial contractors. They are stuck on the deposit, progress payments, and retainage at the end.
We too suffer with slow pay from commercial contractors. We do not offer terms in any way and our progress invoices are marked due on receipt. We make it clear out of the gate not to accept our bid if they insist on terms (most want net30 which we will not do).
Many will stretch it out to 20 days but we have always gotten paid. I am firm with everyone throughout the process that I will not continue business if payments are not made promptly (within the week is my preference).
Your lucky to have a location and reputation that allows for it. Im not sure a modest discount around here would even prompt up-front payment even if you got into the project plans very early in the game.
Most of the jobs we are a part of are on structured releases of funds based on progress so even if we are on-time, or ahead of schedule, the money isnt going to be the on the contractor end.
It's been 20yrs since I sold the business, but we not only built but installed as well. I do hope something here helps.
I always set up a 50% deposit at signing of project. That committed the client and secured a time frame of install. One week before install the second payment of 25%.
The balance was 2/10 net 30. 2% discount if paid within 10 days, Net (balance) if within 30 days. I also had a contingent of 1.8% per month charge for balances over 30 days. They wish to finance the balance, fine.
Now, if you work with residential clients, game is yours. You work with Commercial clients. Beware of the contracts and good luck it working as you wish. Most Commercial clients are 'Paid as paid'. Watch out for this! Work your contract as best you can.
Again, I do hope something here helps.
Right now you have 10% in your pricing with which to fund this incentive.
What happens to your cherry picked customer's expectations when the economy turns against you?
The fundamental underpinnings of our economy are changing. Interest rate hikes and trade wars can rearrange the landscape pretty dramatically.
A more important question might be why are your preferred customers starting to become slow pay?
Thank you Robert & Mark for your comments. Very much appreciated wisdom.
Right now we are booked when permits are filed and updated when foundations are poured. Picking up a check at time of measuring takes the stress out of it for me and 7.5% I can deal with that for the peace of mind of knowing I'm not getting stuck on 50% of the cost of 10-12 jobs.
I have purposefully run about 100% over capacity (capacity equal to my desired amount of volume) expecting this downturn and wanting a larger client base/general contracting base to pull from when the downturn happens. The shop can survive at 1/8th of current workload and thrive on 1/2 of current workload, even after discount.
But I know my general's should be killing it and they are always robbing Peter to pay Paul. Even the guys that should be pulling in a couple mill a year in profit. They all can't say no and are getting too greedy. Expanding always so their cash flow stinks. I'm worried they are going to get caught out of cash when it does turn hard and would rather not be one that gets stuck due to their greed.
This is a timing thing for me. I'm making a bet on exactly what you state in the first half of your post.
Thanks for the input.