Payment Schedules and Stategies

Another discussion on the topic of down payments, progress payments, and final payments. November 30, 2009

I know it has been discussed before but I'd like to ask this one question again. Iím finally going out on my own, being a cabinetmaker for 12 years, a one-man operation. Does anyone have any pointers on how to take payments from a customer? Iím thinking about 50% deposit, 25% after 1st day of installation, and 25% upon completion. Any input is welcome.

Forum Responses
(Business and Management Forum)
From contributor G:
Generally for larger jobs, kitchens I will get a 50% down, 25% after it is half done (usually 2-3 weeks) 20% on delivery and 5% after substantial completion. For smaller jobs usually 50% down and 45% on delivery and 5% on substantial completion.

From contributor L:
Your state's licensing board might have something to say about the amount. They sure as heck do in California, that's for sure.

From contributor G:
From what I know about the California law you cannot receive a down payment more that $1000 or 10%, whichever is less. This is basically a signing payment, usually to get you on the work list for the business. So you get you 10% and then when you start the work you get a 40% start payment.

From contributor C:
50% up front, 25% or when install starts, and 25% when you are done - period. Put it in writing so everyone is clear. Make absolutely sure the husband and wife sign it. 50% is good Ė it gets material and some labor taken care of right away.

From contributor H:
Just be professional above it. Act taken back if you receive some hesitation from the customer. Lowes and Home Depot get 100% upfront on special order stock merchandise. 50% upfront is about right, 25% after the first day and youíre officially in the hole and want to bump that number up to an amount equal to what you now have invested in the job. 40% should cover the labor and overhead and should be collected when you arrive and walk in to verify the condition of the work area and immediately prior to raising the door on your delivery truck. A convenient time for them to write the check would be while your raising the door and removing the straps and packing from their cabinets. I shoot for 90% collection prior to attaching the cabinets to their property. Clearly state on and submit with the estimate, your terms. Mine are 50% deposit required at time drawings are approved and order placed. 40% is due on delivery and 10% or the remaining balance due at substantial completion of installation. I might on a larger job or one that includes finishing do 50% deposit/30% at approval of finish/10% on delivery and 10% on substantial completion. No holdbacks for final adjustments or shelf out. Make it standard policy to have your customer financing their project.

Deposit money equals good, no deposit money equals bad. Delivery and install with no money based on trust equals very bad. Knowing the deposit has cleared the bank is priceless.

From contributor B:
I would try contributor H's way. Once people know what your policy is, then all expect to pay like everyone else. When you get the go ahead to do a job just tell them what your policy is. Most people will not hesitate once they are told at the get go.

From contributor H:
I put the terms in writing as part of my "contract" or "agreement." The percentages and dollar amounts are in bold type at the end of the description of work. Here is a sample for a $10K job. "Total price $10,000.00

We propose to hereby furnish material and labor, complete in accordance with the above specifications, for the sum of ten thousand dollars and no cents.

Payment to be made as follows:
(50%) $5,000.00 production deposit.
(45%) $4,500.00 before delivery of cabinetry.

Please note: product will not be released until payment has been received. You will be contacted two days in advance, either by phone or email, or both to confirm release date and time. (5%) $500.00 upon substantial completion of the installation of the cabinetry." The client has the option of visiting the shop prior to delivery to see his/her project before writing/delivering the 45% check. Or, I can email them photos and they can mail me the check.

"Substantial completion" means that they cannot hold back the last 5% because of something simple like a missing knob or piece of trim. Of course, as the business owner, I have the option of delaying the last 5% until we get those things fixed, but it is my call not theirs. This rarely happens anyway.

I don't apologize for my terms. It is just plain business. I am not a bank: my bank does not make cabinets, and I don't make loans. For a larger money project, you may want to consider a different payment schedule with different percentages. Some of the other folks have mentioned what they do. If the project is very long, waiting for that 45% could be financially painful. Bills still need to be paid on a timely basis. Your creditors (materials, electric, insurance, mortgage, payroll) are not going to wait four months because the project is that long.

By the way, my market is mainly residential, and no "new construction." (I may work in brand new buildings, but it is after the building Certificate of Occupancy has been issued). My client is the end user. Those businesses dealing with commercial projects or GC's often have a different set of rules. Like someone else pointed out, Home Depot wants 100% up front on any special order. I know that my terms are very reasonable.

From contributor A:
For the last six years I have taken 40% down and 60% upon final install. I have never had to even ask for payment when all is completed. That being said; I am changing my payment policies. With all the back stabbing and client games being played these days I didn't want to find myself in payment disputes. So from now on I will be taking 20% down as a retainer, 30% just before the project materials are ordered, (or 50% for an immediate start), 40% a couple days prior to delivery and finally 10% upon completion. I hadn't considered extra long projects, so I will probably break this up a bit more to spread it out. To those collecting a check "upon delivery/ while unloading"; have you had to deal with bounced checks?

From contributor Y:
We have always taken 50% down, 45% upon arrival, and 5% upon completion. Upon completion has an asterisk and disclaimer that states everything in working order. We don't nail in the light apron returns if a backsplash is going in and have had clients try to hold the last 5% saying itís not complete. We always e-mail and call to confirm delivery and payment. We don't stray from this procedure at all. We just collected 50% deposit up front on a $121,000 kitchen.

From contributor J:
We do 50% to start, 40% on pre-finish inspection, and 10% after completed install. The product never leaves the shop until we are 90% paid.

From the original questioner:
Thank you everybody! Iím definitely taking a different approach to the contract. I have been working for a "push-over" for almost 12 years. I have been taken care of and have no complaints. I think i have been scared to go on my own just watching a money addicted cabinet shop owner worry about getting the next "deposit" and not caring about the task at hand. It seems like nothing ever gets finished, and everything is rushed.

From contributor H:

Just because you see your current boss do things a certain way, doesn't mean that you need to do so also. Like anything else that you have seen at your current or previous employers', use the good stuff and stay away from the bad stuff. It will be your shop. Run it the way it works the best for you and your business.

From contributor W:
We have been in business for 12 years and have just recently changed our payment terms - 50% down payment and 50% when cabinets are ready. The install fee occurs when installation is substantially complete - when cabinets and trim are installed. We have also come up with a set of steps for our salespeople to follow that tells them what to do and when. We have taken info from that sheet and built a form that we give to the customer that has a list of what they can expect from us. It explains the process and tells them what info they need to give us and when. It also tells them what the payment terms are so that there is no question. Works like a charm.

From contributor K:
It depends. If it is just for cabinetry that we are not installing, we require 75% deposit, and certified check, cash, money order for remaining deposit at the site when inspected and delivered onsite. No money, no cabinets, and if we have to come back out, it is a $150 surcharge to cover costs.

For remodels, we require:
25% deposit upon initial contract signing.
25% measure deposit (a week later).
25% start deposit the day we begin work on-site.
15% inspection deposit (electrical, plumbing, etc.).
10% final deposit on last day (certified check, cash, money order) - then we hang the fronts and adjust. Tick list has been completed prior to last day and signed off on.

From contributor H:
I love the check list. I just started using a form of that recently. I need to formalize mine some more, but it does take the guesswork out of it for both myself and the client. I also see it as performing as a professional. I run a business; here are the steps to successful completion for both myself and the client; and I never apologize for it.

From contributor W:
Sometimes we mistakenly assume that the customer knows what our process is.

From contributor V:
What do you do if the customer is not ready for cabinets after six months and has nowhere to store them without damaging them. What does your contract look like for that?

From contributor H:
This is handled by one of the "Terms and Conditions" of the agreement that is signed by both the client and the Cabinet Company, substitute your company name for Cabinet Company, of course. Adjust the dollar values for your situation. "Storage and handling charges will be applied to any and all projects undeliverable for more than five days after a delivery date has been set due to delays caused by the real property owner, architects, interior designers, contractors, service people, vendors or any other source not including subcontractors, vendors, and suppliers hired or paid directly by Cabinet Company.

Storage charges are assessed at $2.00 per lineal foot, per day, seven days a week. Handling charges are assessed at $60 per hour. Cabinet Company reserves the right to charge for storage and handling at any point during the fabrication process, beginning upon delivery of raw materials, due to delay by customer/customerís representative. Charges will apply until projects are delivered or fabrication has commenced/recommenced. Rescheduling for delivery or fabrication will be dependent upon Cabinet Companyís workload at that time. Charges will be invoiced monthly and will be due prior to delivery or installation of any projects. Projects delivered to a site and not installed due to delays by others will be subject to full payment minus the cost of installation as determined by Cabinet Company at its sole discretion."

From contributor H:
I included my contract clause in my last post. Now, you may be wondering where I can store all of that extra cabinetry. My shop has a finite amount of space. The answer is to rent climate controlled space at a local rental center. The dollar amounts I included are to cover moving and storage costs.

If your insurance policy does not include off-site storage coverage, then talk to your insurance agent about adding it before you place the inventory into storage, and add that cost to the dollar amounts I have shown. You may find that your "lineal foot" of storage cost is $5/foot instead of my $2. Or, lineal feet does not work for your project. Figure out something that does work. I chose lineal foot because I was considering the storage of cabinetry, not the fabrication. (Most of us know that pricing cabinets by the lineal foot has its shortcomings, but that is another topic).

The key is to have this as a standard clause in all of your contracts, whether you think you will need it or not. This is for a couple of reasons. This is where I tell you that I am not an attorney and am only offering free advice. First, all of your clients are being treated equally. Second, if it is a standard clause, you won't accidentally forget to include it.

Off topic: you may also consider hiring a local moving company to transfer the cabinets from your shop to storage, and possibly from storage to the finished job site. It will save your back and time. I have been doing this for several years now. (It's less expensive for me to have them do it than my crew). Hope this answers your question.

From contributor B:
"25% after the first day of installation". When I read your initial post, this one caught my eye. One word of advice on this one - it's either 25% before any installation begins or before leaving any cabinetry on site, or forget it. Why? Any problem customer (whom you have the payment terms set up for in the first place) will never pay you after you have begun installation. When you go to ask for the payment, they will tell you "you're not done with the install yet, I'll pay when you're done". What are you going to do? Don't ask how I know that.

On another note about your previous boss - you need to be very serious about the way you collect your money, it isn't something to play with. That said, your previous boss leaves you with an opportunity to manage the woodworking side of your business better, so that things are not left uncompleted and things are never rushed.

You need to be very serious about the way you collect your money. I have always gotten every penny I quoted a job for, but came very close to not getting paid from someone who ran out of money one time. The time and effort I spent trying to collect the money cost me the profit on the job and then some. Neither you nor I have time or money for that.