Down Payments on Larger Installs

[JimLewis]

For larger residential install jobs (e.g. a $25,000 job including new lawn, irrigation, plants, water feature, mulch, etc.) what do you guys as for as a deposit?

Usually, I get a 50% deposit at the signing of the contract for every job we do, with the balance due on completion of the work. But on these larger jobs I am sometimes tossed as to what to ask for down. The benefit to asking for 50% down is that you get a big chunk of money several weeks before you even need it. This helps a lot with cash flow, if you have a good sized business. But the disadvantage is that sometimes we get 1/2 way through a job and I've already spent more than what I got as a deposit.

Alternatively, sometimes I'll take 1/3 down at signing of contract, 1/3 when the job is 50% completed and the remaining 1/3 due on completion. This works out well because you still get a good sized deposit, and half way through the job you will have received 66.6% of the money.

Sometimes I just let the client chose. I give them both offers - either they can do the 1/2 down thing or the 1/3 down thing. I tell them either is okay with me - whichever they feel more comfortable with.

But I was just curious how the rest of you guys handled deposits on larger jobs like this.

[GreenMonster]

I'm kinda struggling with this right now too, Jim. I started out this year asking for 30% at signing, but booking stuff out 6-8 weeks, I don't like having that much up front. Then, I feel even more pressure when we keep missing start dates -- all because of the weather this year. Some people are a little leary of giving that much up front as well.

I've done some stuff at 10% upon signing and most people are ok with that. What I've done most recently is ask for $250-$1000 at signing (non-refundable) so that we know these are solid jobs on the schedule, then 50% at start, 50% when done. Or if it's a longer job, a 25% half-way through, and the last 25% when done.

Confused? Like I said, I'm struggling with it.

[Green-Pro]

!/3 to book, 1/3 upon half completion, 1/3 upon final sign off. This has served us well.

GM, I do know what you mean about missing starting dates, we have had a few of those as well. Getting caught up now and actually waiting on contractor to finish four season room on one project (glad its his feet to the fire instead of mine for a change) :)

[JimLewis]

I'm kinda struggling with this right now too, Jim. I started out this year asking for 30% at signing, but booking stuff out 6-8 weeks, I don't like having that much up front.

Well, you need to get over that guilty feeling of having people's money up front. If you have employees, expenses, taxes, etc. then you eventually come to the realization that success or failure in this business isn't only dependent on making profit on each job you do, it's also about CASH FLOW. You need big deposits coming in like this on a regular basis to carry you through the ups and downs of running a business.

Being a contractor is crazy. And the bigger your company gets the crazier it can become. I remember times in the past where I'd check my bank account on Monday at it would be at $35,000 then 3 or 4 days later I was down to under $1000. Payroll, major vehicle repairs, tax deposits, yearly insurance premiums, etc. Sometimes these things hit you all at once. It's the large deposits in the bank that make these temporary hits not hurt.

You know how it is; some times you're just about to finish 2 or 3 big jobs and then you'll have $15,000 more. But that's a day or two away and today's payday and the health insurance bill is due today too. Well, it's those big deposits that help you stay afloat and make payroll and all the other stuff on time while you're still waiting for your jobs to finish.

I used to feel guilty about taking big deposits and holding on to them for a few weeks. But not any more. First of all, I almost never get a customer who seems to mind. They all accept is as standard practice and gladly right the check. But second, I've just come to realize that these deposits really help with cash flow. As long as I got deposits coming in regularly, I NEVER get into a cash flow problem.

So don't feel guilty for taking people's money ahead of time. It's hella difficult being a contractor and most contractors eventually fail. So I don't appologize for doing something that's going to help insure my success.

[AAELI]

Don't normally take deposits unless I am unsure of customer's ability to pay. I do offer cost of money discount for full payment up front, usually 2 - 3%. I have also offered 6 mo. to 1 year free mowing for full payment up front. Most customers opt for the free mowing. We do mow year round here, 52 weeks a year. I am talking of $15K - 20K installs in a 2K sqft - 4K sqft yard. Rock and flower gardens along with zoysia sod accompanied by hibiscus, bromeliads and palms. We end up with roughly 1500 - 2000 sqft of mowing.

I would advocate healthy deposits for unfamiliar customers. I do like the idea of 1/3 down, 1/3 progress payment and 1/3 upon completion. I have also taken 90% payment with 10% retained until all work met with contract specs as agreed upon.. Customer feels in control for just 10%.

Just my $2.00 worth.

[Pro-Scapes]

Jim,
Your a very sucessful business owner and it seems as tho you answered your own questions there. 1/3 1/3 1/3 is great or 50% up front. On landscape jobs we usually go with What I feel materials will cost up front. I got enough capital to cover labor and such but I like having the client committed. I usually leave padding when I give my start dates to compensate for unforseen delays then if we are ahead of schedual its great. Never been a problem so far.

On lighting jobs we get 50 to 60% up front depending on the client and jobs but always a good chunk up front.

[hoskm01]

I'm liking the thirds with one at 50% completion. Always worked well thus far.

[JimLewis]

Jim,
Your a very sucessful business owner and it seems as tho you answered your own questions there.

Yah, I kinda answered my own question, you're right. But I was more or less just curious to see what others did. Always looking for novel ideas, you know...

[JimLewis]

Don't normally take deposits unless I am unsure of customer's ability to pay.

Huh? You'll do a big install without any deposit? Wow. I've never heard of that. Do you do much install work? Because eventually you could get really burned doing business that way.

[AAELI]

Huh? You'll do a big install without any deposit? Wow. I've never heard of that. Do you do much install work? Because eventually you could get really burned doing business that way.

You did notice the qualifier "customers ability to pay" ?

The customers have come to my commercial outlet and asked for me. I have been fortunate to have had no problems with non-paying or late paying customers. I do pick and chose who I work for very carefully.

I have been burned by LCO's who have given bad checks or failed to pay bills on repairs and even one who left Island to avoid paying bills. He took off to Florida owing $28K. Judgement by court had no effect. He disappeared into the Miami area.

I do take care to limit my exposure on installs. Majority of plant/sod material is from my nursery. Rocks are free for the hauling. Labor is mine.

These are only small house installs. I would go with the 1/3 down idea if the project were more substantial.

Been in this business as an owner since 1982. Laborer since 9 yrs. old. Mom says I just like dirt! (Wife agrees)

[AL Inc]

This year has been my busiest yet, we've been able to roll from one project to another since March. For me, my first being able to keep a 2 man crew busy with installs full time. I usually ask for 10% upon signing of the contract, and 25% upon start of work. Then 25% at 25% completion, 25% at 50% completion, and 15% at completion of job. I guess the percentages of completion would leave me open disagreements, but I have not had any issues yet.
And I agree with Jim...I got over the guilty feeling of having peoples money, or asking for money.

[GreenMonster]

To qualify my "guilt" about holding onto money up front...

I'm booking stuff almost into september now. I'm not going to ask for $10k from someone now, for a $30k job I'm going to start in September. I just don't think that is right. I personally wouldn't hand ANY contractor that kind of money if I was having work done myself.

I'm not sure I like the 10% upon signing, 25% at start, 37.5% halfway through, 16% when the moon changes it's phase, 13% when the wind changes direction... just kidding, but point is, it gets a little confusing, and 3 or 4 draws over a 3, 4, 5, 6 day job seems a little silly to me.

[JimLewis]

To qualify my "guilt" about holding onto money up front...

I'm booking stuff almost into september now. I'm not going to ask for $10k from someone now, for a $30k job I'm going to start in September. I just don't think that is right. I personally wouldn't hand ANY contractor that kind of money if I was having work done myself.


I hear what you are saying. It's a long time to be holding onto someone's money. But IMO, if you are really booked out for that far, you should probably have already hired and trained a second crew by now.Then you would be able to take care of your customers more promptly. If it were me, I'd feel more guilty about not being able to help my customers out for several months than I would holding their money.

Regardless, I still wouldn't feel too guilty taking money so far in advance. Because I figure if I am that popular, then I must be damm good and have a damm good reputation. And you don't get a killer reputation by taking people's money and running. So as long as I know I'm not going to just take the money and run, and as long as I feel like THEY know I'm not going to take the money and run, then I don't feel guilty.

Finally, my insurance and bond would cover any customer if I ever did skip out after they paid me. So again, I don't worry about it. And my customers have nothing to worry about either.

[Mike33]

To my knowledge here in Md. we can only take 30% down and balance upon completion. maybe i read manual wrong. Most of my jobs we knock out in few days and i am laxed with my customers since most things i charge. But there is nothing wrong with working off someone elses money.
Mike

[GreenMonster]

But IMO, if you are really booked out for that far, you should probably have already hired and trained a second crew by now.Then you would be able to take care of your customers more promptly. If it were me, I'd feel more guilty about not being able to help my customers out for several months than I would holding their money.


oh, I feel guilty about that too, LOL. I probably should have a second crew by now, but that's a whole other debate. With that second crew comes the need for more tooling, equipment, trucks, not to mention payroll and associated taxes..... basically all those things that require you to take 30% up front to keep your cash flow rolling. :D

[sheshovel]

But the disadvantage is that sometimes we get 1/2 way through a job and I've already spent more than what I got as a deposit.
{Quote{ Jim Lewis }

Jim your getting your materials on account at your suppliers correct? So you don't have to pay for that untell the beggining of the following month?
I say if your 1/2 way through a job and having to spend your own money you need to draw more $$ 1/2 way through these larger jobs. Nothing wrong with that.

[JimLewis]

No. I only have accounts at a few of our suppliers. And I really don't like to charge like that. I always forget about the bill and then it shocks me the next month when I get it and think to myself, "Oh, crap! That's right! We charged all those materials for the Jones job.....Hmmm....I kinda forgot about that.....Maybe I shouldn't have bought that hot tub last week....uh, oh!"

[sheshovel]

Well in this lies your problem. You have to operate like that or you will run out of $$ during a big job.
Your not a bank you know.
It's simple. You keep all jobs on a seperate ticket..if you need more materials for that job you have them add it to that ticket. When you get your money for the job.. you pay that ticket and keep the rest. You gotta keep your personal money and your business money seperate. I usually don't wait tell they bill me. I get my money and deposit it..then go pay for the materials. That way you can use your up-front money for doing the work and paying yourself some and labor some and not worry about having enough to cover materals needed to complete the job. The materials are there and more can be obtained if needed without having to have tha cash for it.

[Az Gardener]

It's important to be aware of big ticket items in larger jobs. I like to keep things consistent regarding draw schedules, but if you have a big purchase that is part of the project I always liked to get paid for those as soon as they were on the job. Our schedule was 50-50 below 20-K then 33.3 X 3, then over 100-k it was a little more creative based on the project. Some times is was divided into several smaller contracts.

At some of the custom homes in the mountain we would set large trees/cacti and boulders, build water features, sleeve and then pull out so they could build the house. So it could be a year or more before we were back.

I don't miss those days, its all simple maintenance for me now.

[DuraCutter]

I might add that here in Alberta, it's illegal to take any type of advance deposit on a residential projects without a special license. That license includes you getting a bond to guarantee the safety of the clients deposit.

I almost got charged as I didn't know this. :confused: Now, I separate the job in various segments. It's covered in the legislation, but it's more muddled, so harder to prove :laugh:

Gotta be careful of cashflow problems though :cry:

[Mats]

Here in Alberta, it's illegal to take any type of advance deposit on a residential projects without a special license. That license includes you getting a bond to guarantee the safety of the clients deposit.


On a residential job, California law does not allow more than a 10% or $1,000.00 deposit, whichever is less.

[JimLewis]

On a residential job, California law does not allow more than a 10% or $1,000.00 deposit, whichever is less.

Wow. That really sucks. I can't see how that could be possible. If you landed a $50K residential install, you can only charge $1K up front? WTF? How can you even afford to be in business? That would suck.

Here it's more like Alberta. You can charge whatever you want as a down payment as long as you are bonded and insured. And the Landscape Contractors Board is not something you'd ever want to get in trouble with here. You take off with someone's deposit money you can pretty much kiss your landscaping career goodbye in this state. They'll see to it you never operate again. So there's a pretty big incentive to stay honest.

[Mats]

Wow. That really sucks. I can't see how that could be possible. If you landed a $50K residential install, you can only charge $1K up front? WTF? How can you even afford to be in business?

Bill Schwab (aka Uniscaper) does very large projects here in California and bills every 3 days.

Bill wrote this explanation, "On a residential application, California law does not allow us to acept more than a 10% or $1,000.00 deposit, whichever is the lesser amount. We call this depsoit a job set up fee, not even for an inking giving the notion that that first payment is refundable, because it's not. No one has ever asked for a deposit back, but that way our time is covered and we leave it up to our descretion. After the job is set up in the que, once we start, or need materials, we bill proportioned amounts every 3 days until we are done. Progress reports are used and presented to the owner and signed as we go, and those are placed into that clients file along with ther log book of day to day events. By the last days of the work, the pay schedule is adjusted so there is no more than 5% hanging in the balance."

That works to everyone's advantage. You don't have 30% to collect at completion and the homeowner doesn't have to shell out 30 - 50% at the start.

There is every incentive for a person to choose this plan over a 33-33-34, or 50-50 plan. From your side, would you rather have a person hold 50% of YOUR money from you, or would you rather they hold 20%? And from their side, would they rather give an almost stranger $10,000? or $4,000??? As they see you progress through the job and view progress, most people are sensible, will be shocked and awed at the changes, and have no problem cutting the check.

It should be very easy to sell a more frequent payment plan as opposed to large increments because everyone has heard of us evil contractors who take money and run. Those stories of that 1/2% of the contractors out there are in everyone's head. You are the hero because you don't want all their money at once.

Most of the time, companies on 33-33-34 or 50-50 payment plans do it because it is easier to collect once or twice than it is 4-5 times. By placing yourself in front of your client every 3 days you have the chance to address concerns and accept praise more often. The job will run smoother, and you will be more likely to get a written letter of recommendation to put in your portfoilio."