What's your down-payement strategy?

[M.D. Vaden]

I was curious how other companies handle the down payment part of business.

The question is more or less to put info in the forums for newer companies that may be figuring out how to approach that part of business.

When I do landscape installations, I always take down paymet for these...

All the materials
All the labor
Plus 2 to 3% of the contract total.

I only approach an install with nothing out of pocket. I'm bonded, the customers are not. Also, I have credit from my material suppliers, but always prefer to pay for the product rather than charging. One company, United Rental, said that that method provides an excellent reference if another potential supplier calls them for a reference.

For pruning, I handle things totally different.

$80 to $1500 is no down payment
$1500 on up, is 1/3 to 1/2 down payment

For the 2500 or so pruning projects I've done since 1988, I've never encountered a no-pay or bad check, so it's more streamlined to lead toward skipping a down payment.

 

[b1rdman]

From a consumer perspective...

I'll give just about anyone 50% up front (any industry), never more. If materials
go over 50% then I'll offer to hop in the truck and go pick up the materials with
you.

All the materials
All the labor
Plus 2 to 3% of the contract total.

To me, this seems like more more a prepayment. If someone told me this, I would assume
that this person shouldn't be trusted or that they operate on a shoestring budget. I
don't want to be involved in either of these scenarios. They'll get a smile, a nod
of the head, and a wave as they pull out of the driveway...end of story

From the other side of the table...

If you can pull this off, keep busy, maybe even pick and choose your jobs...more power
to you. No matter what the terms of contract the quality of you're work that will make
or break you.




Good Thread MD...I'd imagine that one's terms change over the lifetime of a business. Hope you don't mind input from the consumers side of the deal.

 

[begleytree]

Any outfit that needs to be paid before they can do the work or get the supplies is suspect, imo.

any reputable buisness has 30 day accounts to cover the time between contract and payment. ie plants, supplies, fuel, repairs to equipment and or parts accounts.

Getting paid in advance before you can do the work smacks of a fly by night outfit.

Like you said, you are insured and bonded. the customer has no such luxury.

how does having an account and never using it help your credit rating? short answer, it doesn't. you have to acrue debt and pay it off timely to establish and build company credit. having an account and never using it looks like you don't have the work, and therefore, don't need the credit line.
-Ralph

 

[treeseer]

"$1500 on up, is 1/3 to 1/2 down payment"

I'll ask for half payment when over half done on a big job. Don't need it in advance unless you're buying a lot of stuff. What is the justification for this, Mario?

In consulting, it's not uncommon to ask for a retainer on legal jobs, like a lawyer does. I never have tho.

 

[treeman82]

On landscape jobs I'll take money up front to cover materials costs. Larger tree jobs, I will start the job and get a certain amount at the end of the first day... once the trees are down and cleaned up, I get another portion of the money. If there is lots of wood to remove, or stumps to grind, I take the rest of the money after that is done.

 

[M.D. Vaden]

From a consumer perspective...

I'll give just about anyone 50% up front (any industry), never more. If materials
go over 50% then I'll offer to hop in the truck and go pick up the materials with
you.




To me, this seems like more more a prepayment. If someone told me this, I would assume
that this person shouldn't be trusted or that they operate on a shoestring budget. I
don't want to be involved in either of these scenarios. They'll get a smile, a nod
of the head, and a wave as they pull out of the driveway...end of story

From the other side of the table...

If you can pull this off, keep busy, maybe even pick and choose your jobs...more power
to you. No matter what the terms of contract the quality of you're work that will make
or break you.




Good Thread MD...I'd imagine that one's terms change over the lifetime of a business. Hope you don't mind input from the consumers side of the deal.

No problem.

In Oregon, we have a thorough licensing, bonding and testing program.

If I walk away with the down payment, the customers can go to the license board and get their money. If the bond is not high enough for them, it can be raised.

Some customers claim that a lien protects the contractor. But that's a myth. If they don't sell, there is no payment.

So here, customer down payments can be protected, but not credit issued to them in a contract form.

Projects can be done in stages too, with a down payment and payment schedule for each segement.

Treeseer...

You had a question about the justification for 1/3 to 1/2 down payment.

Why not? I pay for my bond, so the customers are not put at risk. That means that we have partial wages as we progress and finish. We don't deposit down payment checks until one or two days before we start. Also, we don't always ask for the down payment on the higher level, especially for previous customers.

It's also a commitment on their end.

With our down payment policies and options, our earned funds are in our pocket within one week or less, where they belong.

We consider that a worker is worthy of his hire, and his wages should be in his hand as soon as they are earned. And that a business should not need to buy materials on credit (unfunded) for another person.

A greater question, is why a potential customer would expect a business to provide valuable services without any payment, considering that no funds are held in a secure reserve? If homeowners were bonded, it would be a whole different ball game. Then the contractors could go to the holder of the homeowner's bond.

The nice part is that there is a lot of flexibility to the down payment part of business. If one business doesn't mind doing $5000 in pruning work without a security of down payment, that's their option. If someone doesn't pay them the $5000, the business passes the loss on to other paying customers. That way they still operate their business, but a step closer to how an insurance company operates, where some customers pay for other customers.

Each way can function.

 

[Ryan Willock]

I usually get a 25% deposit form new customers. I've never asked for a deposit form previous customers, by that point I should know wither or not I'll have a problem getting my money. As stated in another thread I also feel that it helps to prevent someone signing the work order and then doing further price shopping (this applies manly to removals, I haven't had this problem with pruning). The deposit is 100% refundable withing 5 business days of the shedualed start of the job and 50% day before, 0% day of. Again, this is manly for removals as I have never had a problem with prune jobs. Before I started doing the down payment I had a couple of people call me the night before to cancle stating that they had found someone cheaper, this AFTER they had signed the work order! I don't have a problem being under bid by another professional company but I don't like having my time wasted by someone tell me to go ahead and start (work order) and then saying "gee, we ah, changed our mind, we found some one cheaper!" , that annoys me.

 

[John Paul Sanborn]

On some large jobs, I've asked for a portion down, stating it is renewable with cancelation up to 2 days prior.

It may not hold up in court, but the few people who have cancled have called for the refund before I showed on the job.

I call it "ernest money" vs. down payment.

One problem with money down is that, in some states, if you do not complete in a timely fashion they can take you to court. I understand in WI it is triple damage if they win. So document change orders and client initiated reschedules with a signature.

 

[treeseer]

if you do not complete in a timely fashion they can take you to court. I understand in WI it is triple damage if they win.

Well that's a motivation to show up on time!

ok Mario I was not familiar with the state bonding arrangement.

Ryan, your way seems reasonable too. Earnest money, like buying a car, yeah that works.

 

[Ryan Willock]

Guy, one thing that I notice is that people who call some one like you or me for pruning REALLY CARE about their trees and are serious about it. Like I've said before I've never had a problem with a prune job, just the removals. I think that there is a big differance between the mindset of customers in regard to prune vs. removal. From what I've seen dealing with removal customers is that probably 75% of them are more consurned with price than with quality of work..... However AFTER the tree is down and cleaned up then they'll complain that this or that wasn't done. I have not had that problem before but I have seen my parents neibours do it after hiring the cheap guys. I really belive that there is some sort of mind set differance between the two. Has anyone else noticed this? The prune customers also don't mind paying to get it done right, now that doesn't mean that we should go in there and stick them but they don't seem to try to talk you down either.

 

[Ryan Willock]

Guy, I'll PM you my test answers this afternoon. I've also got to up load those pics for you.

 

[John Paul Sanborn]

I think that there is a big differance between the mindset of customers in regard to prune vs. removal. From what I've seen dealing with removal customers is that probably 75% of them are more consurned with price than with quality of work..... However AFTER the tree is down and cleaned up then they'll complain that this or that wasn't done.

A good rule to follow when dealing with hagglers is to have a well writen bid-spec.

Customer is responcible for disposal of stump debris, we will only rake debris pile back into pit to reduce trip/fall hazard.

Customer will rake and dispose of loose twigs, sawdust and leaves, we will remove logs and branches.

Firewood will be cut to 14-18 inch legths and piled (not stacked) as and where we need in the work site. The client will split and move them.

The price is for getting the tree down safely. We will place limbs and logs where we need them to work safely. The client will cut and move them there own risk after we complete our work.


I was just on a "get it down" job for one of my terciary clients. The landowner shows up and says that we can just push the debris from a nasty green ash out of the road before we leave. No questions about extra cost, just do it. So much for verbal agreements an extra 1.5 man hours on a margial profit "gimme" job. Oh, and I napped a 150 1/2 inch burn rope trying to forward with my truck.

Anyone have a "shoot foot" smiley?

 

[maxburton]

I only ask for downpayments if I need the cash. If it's a big job involving a crane I would rather pay for the crane with their cash. It's all about cash flow.

 

[M.D. Vaden]

This is a cool subject.

I like seeing both whether or not people get down payments, but their reasons. Like how comfortable they are with their business arrangements, or what kind of people they work with.

Maybe this is one of the big reasons I like owning a business, is the flexibility and control that's available over aspects of business operations.

 

[Menchhofer]

In 25 years of business I never ask for payment of any kind in advance no matter what the cost. And , I would expect the same from a contractor. Payment is due upon completion or within 30 days.

I tell the customer they do not owe anything until the work is completed. guess I am just a trusting fellow.

 

[John464]

no down payment for tree work. I dont even want payment until the job is finished and the customer is fully satisfied. It just doesnt feel right to take money for something that I may not get to for a few weeks.

landscaping I could understand getting a deposit for supplies, but we are strictly trees so I dont ever have that issue. I refer my customers to a landscaper who refers us for tree work. Not sure if they get a deposit or not.

 

[M.D. Vaden]

Today when we were coming home, a unique thought crossed my mind, about contractors who were friends, and many others whom I've met.

All the contractors could be grouped into one of two sides.

One side never got stiffed on materials, they always got paid for the materials at some point.

The other side, included some contractors who did get stiffed on the material costs.

The one common attribute to every one of the contractors who got stiffed, was that they paid out of pocket for materials without a down payment.

I hadn't really looked at it this way before.

At least with tree work, the materials are often minimal.

That's one thing I love about pruning. The materials are little, the equipment is relatively few, and the projects don't usually drag on for weeks for typical residential work.

 

[trevmcrev]

Here in Oz, almost anything you get done at your home EXCEPT tree work the contractors will want some sort of deposit. So i figure why not us too.

We started doing it a bit randomly, depending on the feel i get from the client.
It is printed on our quotes(25% deposit), so the ones that get asked for it think no different, like its expected. The ones we let through feel good that we trust them not to pay it. I'd normally only bother on jobs over $1000

I have found it helps weed out those odd ones that you schedule and they tell you the night before they got someone else. Or worse still a couple of times we've turned up to jobs on our scheduled day & time to find the tree gone.

If this sort of thing happens it covers the time & effort put in before arriving at a work site which can be a bit for us with organising and paying for council permits up front.

What i really hate though is turning up to my quote appointment at excactly the time and day we made to find some other tree co there doing the job.

Why the ffff dont they call to cancel your quote. Sometimes it can have taken 2 hours out of my day for a round trip for nuttin. I feel like charging them for that time but good luck with thatopcorn:

 

[Menchhofer]

Customer signed contract would prevent them from canceling without a penalty. Try it, it works for us.

Here in Oz, almost anything you get done at your home EXCEPT tree work the contractors will want some sort of deposit. So i figure why not us too.

We started doing it a bit randomly, depending on the feel i get from the client.
It is printed on our quotes(25% deposit)

I have found it helps weed out those odd ones that you schedule and they tell you the night before they got someone else. Or worse still a couple of times we've turned up to jobs on our scheduled day & time to find the tree gone.


What i really hate though is turning up to my quote appointment at excactly the time and day we made to find some other tree co there doing the job.

Why the ffff dont they call to cancel your quote.

 

[M.D. Vaden]

I don't know if it's just a local Oregon thing, but I heard that people can legally back out of a contract within a certain number of hours or days here.

That's what I heard.

I don't know if it's a fact.

With all the users on here, somebody must know for a fact if that's baloney or for real.