My primary contractor is continually dragging out my payments, both deposits and finals. It's really catching up with me on my monthlies. It's about time I stop this before I have to get a loan to cover my monthly expenses. Any suggestions on how to explain the reality of the situation to this contractor?
Work wise, our relationship is excellent - multimillion dollar residential construction. Tons of excellent work. Almost no competition. If I'm not making decent money, it's my own fault for saying the wrong number. I can't walk away from him because everything else works so well.
(Business and Management Forum)
Tell him that you need to raise prices (for all of your clients) by, say, 5% (or whatever). But, since he is such a good client of yours, you can give him a 2% discount if he pays you within 10 days of delivery. As for deposits being late, I do not add any work to the schedule unless a deposit is in hand. His lack of cash flow management should not be your financial problem. Stick to your guns.
Beyond that, work to distance your business from any one client. You need to have enough work from other sources so that you can put your foot down with this contractor and say "show me the money!"
In my experience, contractors will do nothing but take, take, take. They're only out to make as much money as they can for themselves. And I say this being an equitable partner in a contracting business. For this reason, I market to and try to deal specifically with the end user, the homeowner.
Currently, my game plan is to come up with some strict rules of deposit and reimbursement with the perpetrator. That being said, I may have to take out a line of credit to stabilize things. I'm still sucking up a lot of financial woes from last year... built a new shop, building up material inventory, etc.
Instead of simply adding my usual markup (profit?), I'm considering adding an extra 5% to this customer's bill, anticipating that I won't get paid in a reasonable amount of time.
1) Contractors will take as long as they can to pay you, although they do keep you busy.
2) I will no longer be a "subcontractor" to anyone.
3) I have come to offer a contractor two ways of payment. The first - upon my receipt of half down, we will schedule them into our system to start the job. Once we complete the project, they pay us the balance or it doesn't leave our shop or get delivered. Cash and carry. Second - the same as the first with half down, and we finance you at 18% APR and will be billed monthly. This credit is only approved after a lengthy credit form is filled out with both business and personal information and a personal guarantee by all owners or partners that no matter what happens, I will be paid.
I will not be a subcontractor for any reason. I figure if they think that I am a finance company, I might as well act and charge like one. We have had no problems whatsoever getting paid on jobs because of this new financial agreement that they must fill out in order for me to give them any credit. Also, if you make an agreement like this, make sure it holds up in court, and make it almost so long that they will say "Ya know what, it's easier just paying the bill."