Struggling to Get Paid

Cabinetmakers discuss payment problems in the industry, and compare contract and billing strategies. July 3, 2006

Last week my attorney informed me that the woodworking industry files more lawsuits than any other trade. Why? We don't stick together, and will sell out to the GC when we know they don't have a lower bid. The associations that we belong to do not encourage our legislators to promote having prompt payment laws introduced to our state legislators. We are signing contracts that are not fair to both parties. We can be penalized for not making completion dates, but do not receive incentives if we do. How many times do we have to get hit over the head before we learn to stand up for our industry? This applies to manufacturers, suppliers and installers. The GCs are making all the profit and now, they are all management companies, so they don't have to answer your questions and take any liability. They expect us to run their jobs for them. And their new quirk is to back charge all trades for their labors, dumpsters and all cleanup at the end of the jobs. Expect the same unless this industry starts to speak up for itself. How about having sealed bids, instead of letting the GC shop our bids? Is everyone afraid to stand up to the general contractors? If so, we lose.

Forum Responses
(Business and Management Forum)
From contributor R:
Dude, have you flipped out? All GC's aren't bad. They don't make tons of money from our custom cabinets. Custom cabinets don't make the house sell for enough money to cover the cost over factory cabinets. Many GC's treat the cabinet man bad because there is another dude working from his garage that is standing in line to get treated bad. This industry is just as united as plumbing or HVAC - each shop must stand up for itself. There should be no reward for finishing a job on time that's what we are supposed to do. I don't like to clean up after anyone else. Everyone should leave the jobsite as clean as they found it. Each of us has the right to run our business any way we see fit. Is someone forcing you to sign a one-sided contract? If our trade required a license like plumbing, HVAC and electrical, there would be far less competition and we would not be so easy to replace.

From contributor H:
First, I don't believe that the woodworking industry files more lawsuits that anyone else. If they did, our insurance rates would be that of a doctor. Just filing a lawsuit does not get it heard in court.

Who is twisting your arm or holding your family hostage so you'll sign an unfair contract? Liquidated damage clauses do exist. As do incentive premiums. The first are more prevalent than the second.

Some GC's, but not all, are bad. In fact, most are good. But it is human nature that bad news travels faster than good. One need only turn on the TV at night. It sounds as if you have gotten a bit burned recently. Shake it off and move on. Remember that what goes around always comes around. Stand up to the GC! It's easy - just don't work for him. Don't even bid on his work. He's not the only one. Consider working only for the homeowner.

From contributor M:

I feel your pain. My construction attorney finally returned my call, 7 days later. I just added it up, and I have $50,700 in uncollected invoices for '04-'05. And we may be adding another $12,900 from a business that has been one of our best customers for years. These are for homeowner, architect, and GC. So, contributor H, I find fault in your response - no offense.

I am tired of paying attorneys to get money. But I'll be hanged if I am going to reward the client for not paying. I worked hard, and I rightfully deserve it. Now I have to work hard to collect it, too?! I guess I see it as an investment. We do have prompt pay laws in Texas, and it pays at 18%.

I am not an idiot or a doormat, and yet I am getting stiffed on payments. And I can tell you, contracts are just as good as locks - they keep an honest man honest. My wife and I were talking tonight, and she said that if this is a trend, where contractors are not getting paid, then should we continue to get into this deeper? I am looking at a much bigger space and some serious equipment. But now I wonder, is it really worth the risk? Do I have to crank work out assuming that a good portion will be difficult to collect or go unpaid?

I wish I knew how to judge the willingness of clients to pay better. After 6 years, I have learned a few tricks. One is never give a discount on the promise of future work. When I hear someone tell me that I should give them a break because they can make many referrals, well, it has just been hot air for me. The best referral sources did not brag about it or ask for a discount. Second thing, change orders in writing. It makes more work for me, but it spells things out clearly. Third thing, don't give things away. After working with lawyers who are working for me, I have never heard one of them (I have 3) say, "I am sorry it took so long - I'll just throw that in." And can you imagine the look I would get if I asked them, "Are you going to charge me for this?" If you are a professional, you should not work for free.

From contributor H:
As I said, not all GCs are bad. But I may add that in the 30 years I have been in this business, I have found that for me, the homeowner or end user as a client is the best route. I have found that doctors are the most fussy and picky, but they pay. Banks and contractors pay when they feel like it. And lawyers? For me, they have been the worst. No one can delay payment like an attorney. And try getting another lawyer to even call one of his own on your behalf. You need to hire a lawyer to get paid by a lawyer. They just represent themselves. It all comes down to "if you don't like the deal, don't take it." Isn't it our business? Don't we set our terms? I know it sounds like I don't want the business. But what good is bad business?

From contributor S:
The best run business is one that never needs an attorney. Lawyers didn't just "get" their reputation... they earned it! A lot of people forget that running a business is a talent unto itself. You could be the best craftsman in 40 states, but still be a lousy businessman and thus will end up needing a lawyer, who by the way, earns 4 times what a woodworker does for half the effort and no risk.

From contributor P:
I was speaking about the commercial end of the woodworking business. I don't know how the residential side of the business operates.

From contributor J:
Two problems: Cabinet shops are a dime a dozen and a lot of them are operated by unprofessional, uneducated guys barely making a living who have no clue about operating a profitable business.

Most commercial jobs are competitively bid and, generally speaking, an adversarial relationship exists between the GC and the cabinet sub because of the way GCs operate. A GC and the cabinet sub should be partners. It seems that most of them want you to operate as their banker, when in fact there is financing in place for the project. Once a cabinet job is installed and accepted by the GC, then the cabinet sub should be paid in full sans retainage, regardless of when the construction is finished or the GC is paid. There is a fallacy in place that forces cabinet shops to be treated as contractors rather than as vendors - that is, cabinets being attached to the wall somehow makes them different than a piece of furniture that is purchased at a store and set inside the building. Wouldn't it be great if we could all personally operate as a GC? "I'm not paying you until I get paid."

From contributor O:
Once upon a time, I use to get the shaft all the time. Then one day I had a thought. I said, "Self, what would happen if I asked for 50% up front and the balance before anything left my studio...?" Well, the two sides of my brain had a really big argument. Hell, I think it lasted 3 days, if I remember right. Needless to say, the two sides compromised (thank god). Now I do not have the problems I did before.

About your receivables, you could always just give them to collection after 90 days (don't forget to bill them every month) or once upon a time if you owed the IRS a whole lot of money, they would take your receivable as payment. 99% of the time they got the money.

From contributor F:
Several years ago after 20 some odd years as a working GC (actually wore the toolbelt most of every day), I decided to adjust my way of doing things, mostly because of escalating insurance costs in my area. I informed all employees and subs it was the end of the line and I concentrated on building custom built-ins, I placed an ad in my local newspaper and at first the going was slow and I did resort to doing some work for other custom builders. I found if I structured my proposals properly, I could receive 50 + % upon acceptance of my proposal (signed copy with check), which then becomes a contract. Two days prior to delivery to the site, I would notify the GC that payment in full was required in order to commence with installation. This is my policy and it seems to work fine. Occasionally I will start installation without a check if I am working for a repeat customer who I trust. I have not had a single incidence where being fair and honorable has ever backfired. Try my method - it works.

From contributor A:
I do it contributor F's way. 50% deposit. 40% before delivery. I'll drive it out, but it will not come off the truck without a check in my hand. 10% after all punch list completions. I learned this the hard way. If I need to, I have a collections agency that can get money from a stone. Granted, they take 33%, but I'd rather have 66% of something than 100% of nothing.