Tradesmen - advice on payment terms

[liamcrayden]

Hi all,

Recently started helping out with a gas company - general plumbing work, boiler installs, breakdowns, safety certificates - the normal central heating stuff. 90% of business is from residential customers.

My questions are as below. Let's pretend that the work I am doing is being billed to a residential customer at £900, on which I am making a £250 profit, and assume that I have never done work for this customer before, or that he has potentially used me once in the past. Please try to answer the questions as you think it would be generally accepted in this sort of trade:

1. Is it normal/OK to ask for a deposit up front before work commences. If yes, what would you suggest this be? Would you ask for just a percentage of the total amount, the complete money for the parts only upfront, the entire cost, or something else?

2. On completion of the job, should I be collecting the balance before leaving, or should I be giving them an invoice which allows so many days terms? If I should be invoicing, what sort of terms should I be giving a normal residential customer vs the terms I should be giving a business B2B customer?

3. At what point should I provide the customer with my invoice? Should it be before the work starts (just so they have it, almost like a quote really), should it be during the time I'm doing the work, or should it be given to the customer upon job completion or receipt of payment?


Many thanks for your opinions in advance

 

[DavidWH]

Cash is king.

Deposit, at least to cover materials. We operate a minimum 50% deposit. The nearer to 100% the better!

They're getting immediate benefit from your installation/repair so I'd insist on them settling the balance before you leave.

You could issue a quote, stipulating the deposit, issue a receipt for the deposit, then issue a receipt for the balance when paid.

To promote early payment, you could offer a discount, if they pay by BACS prior to work commences, no trip to the bank, no banking fee's, and you're paid in advance.

 

[liamcrayden]

Thanks DavidWH.

Cash is most definitely king. I'm in a dispute with a co-director about the way customers pay, and the reason for the dispute is cashflow is so limited that it means future jobs are being paid out of the profits from the previous jobs, with the cycle never ending.

For example: he insists on only taking £200 deposit on - for example - a £2300 job. The materials for this job are likely to be around £1700, and because of the tight cash flow end up being put on supplier credit account. Upon completion of the job, the co-director is happy to only then give them an invoice, giving them a further 30 days payment terms from that date. The problem with this is that the payment on supplier account is due before this, so profits get eaten up everywhere whilst we're waiting for these payments to come in. I must admit it rarely takes customers 30 days to pay but in theory they could take that long, and only 1 customer has ever *not* paid, so it's not like people are getting away with things and we're losing out in that respect.

The reason for my post was because his argument is "thats just the way it works in this trade, everyone offers those terms". I am not clued up about the industry as my primary experience is in Signmaking and I.T (a strange combination I know). Now I can understand that B2B you would perhaps offer 30 day payment terms, but my personal opinion is that Joe Bloggs down the road at number 93 shouldn't be given a brand new central heating system, and having only paid a £200 deposit then pay us for it over a month later.

The current situation is that we now owe £3000 on credit account for materials/parts from a job and the co-director has turned around and said "well they will just have to put us on stop then until we can pay it" - but doesn't see any problem with this.

Work and profit is not a problem; there is plenty to go around. The money is just never there when it's needed and I'm quite sure that it's solely because of the way these customers are being charged....

 

[MikeJ]

From a customer perspective, I'd be really concerned about a boiler company looking for 50% up front. However, I'd also expect no more than 7 days to pay after the job's complete. I'd not be willing to pay cash - that kind of money is too much to have lying around the house, but these days you should expect a BACS or cheque payment pretty much as you walk out the door.

 

[WHGB Tom]

Cash is king.

Deposit, at least to cover materials. We operate a minimum 50% deposit. The nearer to 100% the better!

They're getting immediate benefit from your installation/repair so I'd insist on them settling the balance before you leave.

You could issue a quote, stipulating the deposit, issue a receipt for the deposit, then issue a receipt for the balance when paid.

To promote early payment, you could offer a discount, if they pay by BACS prior to work commences, no trip to the bank, no banking fee's, and you're paid in advance.

Agreed with David on this one, you want to reduce the chances of anyone causing problems. If you can work on a minimum of 50% upfront, with the aim of trying to at least be at a point where you won't make a loss if they decide not to pay for whatever reason, it allows you to get by and on to the next job. Not trying to be negative or anything but always try plan for the worst, that way youll never be completely out of pocket.

Good luck

 

[Ian J]

For example: he insists on only taking £200 deposit on - for example - a £2300 job. The materials for this job are likely to be around £1700, and because of the tight cash flow end up being put on supplier credit account. Upon completion of the job, the co-director is happy to only then give them an invoice, giving them a further 30 days payment terms from that date.

The reason for my post was because his argument is "thats just the way it works in this trade, everyone offers those terms". .

That maybe the way that things work if your customers are businesses but I've never heard of any builder / plumber / electrician giving credit to a customer.

Certainly for any work that I've had done the builder has given me an invoice a day or two before he's finished and I pay him on his last day.

Giving credit to private individuals is foolhardy as you can bet your bottom dollar they will start to find faults when it comes to time to pay

 

[DavidWH]

Go back to your co-director and remind him the pre action prototcol is changing for recovering debt from individuals. There's a post here about it.

As @Ian J says, once they've paid, they're less likely to nit pick and try it on for a discount.

BACS, or one of those mobile card readers, and balance paid in full on completion.

I can't believe a £200 deposit on any job... it needs to be a % of the job.

We're in the sign business and we've started implementing pro-forma, even B2B, only frequent customers, who meet our criteria get credit.

 

[Awinner2]

Residential customers: Deposit + VAT (if registered) that covers your materials as a minimum. Balance due on completion. Businesses that have completed a credit application ( and that you have had verified) 30 days, but at worst expect payment at the end of the month following that of invoice.

 

[STDFR33]

50% up front and 50% on completion. I'd expect the last instalment to be paid within 7 days.
Both trader and customer should be happy with that.

I would never expect 30 days credit for someone doing work in my home.

Businesses will expect 30 days however.

You can get wireless card machines that will connect via your mobile phone. So card payments whilst you are there is also an option.

 

[Awinner2]

Or for payment on the spot, invoice them via PayPal for immediate payment. Done via the PayPal app to your clients email box

 

[Root 66 Woodshop]

I think he's getting mixed up with supplier's accounts, account customers and domestic accounts to be honest.

We ask for 50% deposit on all works exceeding £1000 or bespoke products.

The balance is our profit margin and cost for an engineer being on site for x amount of time.

We charge X to account customers per hour and X to non-account customers... all products are charged out at the same price, it is irrelevant as to whether they have an account with us or not.

With some customers, we do allow 2-3 days for paying of a balance, in some cases insurance companies are paying for the work we've done, so we provide an invoice prior to installation, once we've been paid (which is normally in full prior to the installation from the insurance company) we purchase the equipment and book the job in on our calendar.

With regards to a discount... The only kind of discount I give, is to round down the order to the nearest pound... only for ease of calculations for some customers.

If it's a quick job and it's not a massive amount, such as anything under £500 then we tend to ask for payment under completion prior to leaving, in some cases we're paid via BACS 2-3 days later... again, no real biggie.

 

[Ian J]

.

 

[lesliedocherty]

As a business customer we have only been asked for a deposit once (alarm company), only occasion and we are an existing customer for 12 years.
As a residential customer, never been asked or a deposit.