I am trying to transition from residential to commercial/retail, and not quite sure what the norm is for terms, POs, etc. I completed a project for a big fixture company 21 days ago, and they still haven't paid. I understand that 30 days is common, but we have not set any terms. They want to use me for other special projects, but I want to limit my exposure and make sure I get paid in a timely manner. I don't want to look like a moron as I try to set the stage for a good relationship with this company.
I should say that I do not extend credit to anyone who wants it. I recently had an outfit that wanted 30 days to pay a $350 invoice.
What does all this stuff mean... Net 10, 30, 60, 90? Is it unreasonable to ask for a deposit? How do you decide to offer terms? Do you do a credit check, bank references, etc.? And how do you do this? Do you have to have a signed application to present to their bank? What information do you need on an application? And what are red flags as you decipher their information? Do you talk directly to the comptroller, the project manager, or the VP?
(Business and Management Forum)
From contributor A:
Net 12, 20, etc. means the total (the net) is due within that many days from the date on the invoice. I don't do credit checks, but I keep a lien on everything until it is paid for. Some will try to get you to sign a waiver of lien at the beginning of a project. Don't do it; wait until it is paid for in full. Also, be sure to put your name on your product, or if you go to take it back, they can get you for theft. In fact, in some states, I think they can anyways. But there will be others chiming in on this, so see what they have to say. I have never had to do it, so I am not sure of the specifics.
Always get a deposit. At least 50%. I bill for the other 50% after install net 30, but a lot of people on here get their final payment before anything leaves the shop. You have to decide what works for you, but do ask for money upfront. If they go to the Homey Dopey, they have to pay 100% upfront before the order is even placed. Or so I have been told.
One thing to consider is, do your vendors give you terms? They should, otherwise find new vendors. I get net 30 from mine. The important thing is to keep contact with your customers. If they haven't paid you when you think they should, just call and ask if everything is okay. It beats the alternative. Have you ever had trouble paying bills? I am willing to bet you have; I have, still do. But I call my vendors and creditors and maintain constant communication. That is the secret to success in anything. Whether it be an install, a new business venture or even marriage - communicate, communicate, communicate. So just get on the horn and ask, in an unthreatening manner, when you can expect to get paid.
As far as who you contact, there had to be someone who called you about the project in the first place. Call them, then work your way up the totem pole. And don't do any more work for them until you resolve this issue. They do need to get you paid, just get terms set up so you know you will get paid, then offer to do their other projects. They may want you to do more because they perceive you as a pushover. Politely prove them wrong. If that was their intention, they will rescind their offer and you will be better off for it.
I never did credit checks other than listening and asking questions around the trade. Seems like most bad pennies showed up other places first. A healthy relationship with some of your competitors is worth much more than any credit service.
From an individual or small business (1-10 personnel type places), my terms were 50% down and balance on delivery on the first order. This showed in most cases if they were a pain to do business with. On follow-up orders after a few successful jobs, I relaxed to the point where it was net 30. Net 30 equates to usually 45 to 60 days. Not fair, not what we agreed to, but the reality of the situation. My business thrived on the small customers and repeat business. I made no efforts to sell. Word of mouth was it.
For corporate customers, a PO is usually all you can expect. Big companies, even the Enrons of the world, think their good name (even if it isn't good) should suffice, especially for the small vendor that I was. My typical job was about $3500, but ranged from a few hundred to $50K. I would often do multiple jobs per week for large clients.
Bigger companies either paid within terms or almost never paid. They know that a bill under $5000 isn't going to a collection attorney, and they have 3 other vendors in their lobby every day. On the average I would say I got stuck for about $3000-4000 for sales of approximately 1 million in a good year. I rarely made an effort to collect small amounts as the time away from production was more expensive than the loss. The big ones hurt - sometimes I got stuck for as much as $30K, usually because of a bouncing check. So getting the check and releasing the product is no guarantee of payment. Big company checks were always safer than the homeowner's check.
Now that I am a small time cabinet guy, I ask for 50% down, balance on delivery to private individuals, and net 30 to contractors. I still demand deposits from contractors as they do get money up front, and in my opinion are usually sleazier than Mr. Homeowner.
I ceased to offer quick payment terms like 2% - 10 days because most customers paid bills in 45-60 days and still took the discounts, and it's a pain to re-invoice for the little involved, and seldom collected.
One thing that I am sure no one on this site is guilty of, since we are all professional businessmen, is poor performance by us, the vendor. I have found people reluctant to put up deposits for 2 reasons…
1. They don't have the money, and may try to beat us out of the job. A mistake because of the lein laws. We may not get the money timely, but we'll have our day eventually.
2. They have a genuine mistrust of "construction" people in general because of past dealing. Late delivery, shoddy work, over charges for "extras," etc.
I custom built a home and dealt with the trades. My parents are building right now and having most of the same problems. Most contractors are poor business persons, even if excellent at their trade. For many, timeliness is a mere thought. It's true the box stores demand 100% payment with order, but if the wrong color shows up, or any other problem, they take the product back without any argument, usually due to the relationship with their suppliers, not a caring attitude for the customer. We need to foster a mutual trust with our customers. 50% down shows they are serious, and usually more than covers our costs. 50% on delivery for an on-time delivery of a correct product is also reasonable. I don't install, so when it's in the truck, it's theirs.
There has been some real attitude in my opinion here at times about terms. You should be able to get 30 day terms from your suppliers if you have a good credit score. 50% down and 30 day terms should give you no cash flow worries unless you are doing huge projects that extend beyond 45 day building processes. I have read many posts about a guy bitching because he delivered a job 5 days ago and hasn't been paid yet. I laugh at those. I get the idea that many here are operating on a shoestring and have no money behind them. Get a credit line if you need it. Figure the cost of money into the bid. Personally, I don't have the gall to call a customer up who is only 10-15 days late on a payment. Heck, most of the time the check really is in the mail - it took 3 days to go through the A/C department and 10 days in the mail. You want to get paid; we all need to. But I have found the best way to get paid promptly is not to demand it, but to create a want for the customer to continue to do business with me because of my talents. Those are the ones who will be repeat customers, and send you referrals.
Just for info, with net 30 day terms, you will still need to have 3 months worth of expenses for both the shop and your home in the bank, or you will always be swimming upstream. I think that is the biggest mistake many new business owners make. They lose their job, or quit to go it alone without proper financing behind them. It greatly complicates things when the buck takes on more value that the product.
Some of your specific questions have been answered by others here, but I would say it is important to distinguish between different types of commercial customers in trying to figure out terms and how to navigate the system.
It sounds as if you were dealing with another shop, which is entirely different from dealing with a commercial contractor. With any customer it is important to establish the terms up front, in your proposal. Say what you want in writing and by accepting your price, the customer is at least acknowledging your preferred terms. From that point it becomes a question of how badly you want the work and how much you are willing or can afford to compromise. A shop that is subcontracting work to you has a great deal of flexibility and if you don't like the terms they are proposing, you can usually get some version of your own. Whether they will abide by the terms they agree to is another question, but if you develop a relationship with the project manager and with the accounts payable staff, you will have an easier time getting paid. I also offer a 2% discount for prompt payment, but all of my prices are marked up by that amount because it's not enough for me to feel better about my cash flow - that 2% is a cost of doing business that has to be recovered.
If you are dealing directly with a commercial contractor, things can be quite different. You may have to submit your bid on someone else's bid form that has no place for your terms. You may have to provide a bid bond and/or payment and performance bond. You will almost never get a deposit. Your contract may state that you will get paid when the contractor gets paid, if the contractor gets paid, or any one of a number of other noxious clauses. You may be asked to sign a contract that says you agree to all the work in your section regardless of whether it was specifically included or excluded in your proposal. You may find that you can't collect any money until all the materials are on the jobsite, even if you have fabricated everything and can't deliver because of a scheduling glitch. You may encounter retainage, which is the practice of holding between 5 and 10% of each of your monthly draws until the entire project is complete and all other subcontractors have done their punchlists and completed all of their paperwork and resolved all claims. (This can take up to two years.) You may encounter liquidated damages clauses that can be invoked if you are late with your work. You may have to provide warranties, lien releases, certified payroll reports, quality certification, LEED certification and others before getting paid. You may have to fill out complex pay applications and schedules of values and submit them to an accounting department located in another state whose mission in life is to delay getting you your check, if only for a few days. (Many large constructions companies make significant money on the "float," short term interest on millions of dollars.) In short, it's another world and it's worth finding out about it before diving in. I still love it but I've learned to navigate.
To be more specific, I am doing projects for a large fixture company. I have heard pros and cons about fixtures. Any suggestions on how fixtures are different than commercial GC's? Do stores pay money upfront, and if so, could I expect a deposit? I am just looking for your experience. I realize it will be up to me to find out.
It sounds like I need to have 90 day in reserve, or a line of credit to cover it. You know, I guess I am just naive. I pay my bills on time and just thought everybody else did the same thing.