How do you pay contractors you work with?

Question

I usually try to pay half up front and upon completion, I'll pay the remaining 50%.  What methods of paying contractors do the rest of you use?

Rebecka Melson · Answer

1/2 up front? Sounds like a good way to get ripped off to me. I usually pay based on percentage of completion with weekly draws. "If" I pay anything up front it is only about 10% of the contract. I have worked with most of my contractors for years and some of them are independents and need money up front to buy supplies, but I only do that with contractors I have experience with.

I won't issue any payment until I have a signed contract, W-9 and insurance certificate on file. I also require lien releases for each payment, they don't get their next draw until I have the lien release for the prior payment. They don't get final payment until all permits and final inspections are in, and I've approved the work. They must submit invoices for payment.

Account Closed · Answer

Nothing up front. They get paid for the work after the work is done.

For smaller contractors, I buy materials and have them delivered to the job site.

For larger jobs, (like building a house) the contractor gets draws, but even then, I always worry that as soon as they get paid for the third they just finished, I will never see them again.

Chad B. · Answer

Micro-

Wow that sucks! The state is really setting contractors up to get burned big time on this one. Isn't there anyway to get progress payments on bigger jobs. That just doesn't sound right to me. I would insist on setting up some kind of escrow account for smaller jobs and I'm guessing you could work out normal progress payments with a title company on the bigger jobs.

Glad I'm not in CA and hope this is one of those CA trends that stays in CA.

Christian Malesic · Answer

Microbet:

Leave California  :wink:

It is just the strangest state.  So unlike the other 49.  Stay away from the left coast - liberalism run wild.

Jay Hirsch · Answer

I'm a Solar Installer (Electrical Contractor) in California.  Here there is a law that a contractor can only collect $1000 or 10% which ever is lower as a deposit.  No other money can be collected before work has been done.

This is very difficult/impossible for Solar Installers (and any other trade where material costs are huge and need to be made before work starts).  If I  even do a few jobs where I have to front the cost of all the equipment and the clients are slow to pay it could cause me a lot of trouble.

Does anyone here have any suggestions or thoughts?  I know some of you are looking at this from the clients point of view, and I understand that since I've done property rehabbing myself, but it's really difficult and risky for a contractor to float a lot of money.

One thing I'm thinking is that if I get a resellers license I can possibly treat the sale of materials as separate from the installation contract.

Christian Malesic · Answer

With all due respect, I have no idea how you are defining 'good'.  I offer this:

I am one of the top rated instructors for the National Association of Home 
Builders (NAHB), which is the largest building industry related association in the world.  We train that ALL contractors should get 50% up front (unless, as Minna explained, the job is significant in size although our definition of significant is much higher than hers).

As to a a follow-up question by another poster.  It is incredibly rare that we are turned down for a deposit.  We also have a signed 5 page contract for jobs over $2,500 and a signed 1 page mini-contract we calla proposal for all smaller jobs.  When we are turned down, usually it is from scummy landlord-types that are shady and never bathe. :D

Seriously though, in over 10 years of operation, we have had to sue only once.  The case continues as he has appealed our winning the first round after over 2 years of legal battle.  He was a flipper.  Here is a direct quote, "I already sold that house, why should I pay any of the trades?"

Wouldn't you collect 50% up front if you were in our business?

Danny Kay · Answer

No money upfront, GC's invoice the client every 2-4 weeks approximately. These are on large retail refurbs ($2m+)

On smaller scale SFR refurbs I have done, I pay each sub upon completion. No reason for you to pay up front, especially 50%  :shock:

Jenny F. · Answer

Understand that contractors take risks too.  Being a contractor and an investor myself I can easily see both sides.   :woohoo:

We are not all bad.  some of us have moral values and wouldnt be able to sleep at night if we left a family high and dry and skipped town with their money.  Some of us believe that what comes around, goes around.

When i intially consult with a client I tell them to get at least three estimates and interview each contractor.   Get references! talk to the inspectors! Check out the state website to see if they have any complaints against their license.  Have them request from their insurance company a proof of insurance to be faxed to you from them.  If you dont like the price but like the reputation, talk to them.  You would be surprised how much negotiation can save you.

I charge upfront: Materials and 1/3 labor down.   I would be happy to let a client pay weekly (through completion) if they were nervous about the situation.  I ask for proof of funds up to the amount of the contract.  If the client wants to be the one to purchase the materials on their own (with MY list), i am happy to go get the materials and bring them to the project site.  the project is completed in 3rd's after that and they know in advance what each phase of the project is and what they will be left with if they dont pay.  (though I have never had that happen).

I even price comp for the client to find them the lowest possible price on the materials that they need.

Contractor's spend a LOT of time with prospective clients and these are hours that are non productive to the contractor.  They can never be taken back and earned upon.  For every hour spent with a potential client i have to pay several guys to go to the jobs i have landed.  Then i spend the rest of my day getting materials and making sure my employees are performing per job specs and getting things done the right way the first time.  That doesnt even include that materials changes or change orders from clients...."hey, while your in the kitchen installing my tile....could you move that wall out of the way and have my washer and dryer hooked up somewhere else?"

12- 18 hour days are not uncommon.

I have good credit.  I have spent all of my adult life building that credit but I should not be expected to carry credit balances on my credit for materials that do not belong to me or my business.  I need to use this credit to grow my business and branch into new markets (such as investing).

Adam Logan · Answer

A-M-E-N!!!  Do your due diligence on who you hire and no one would have been ever ripped off their down payment.  I get nothing down, order my hazardous chemicals they choose, and then they never let me do the job,  I eat hundreds in materials I cant return!!  They die before the scheduled day, same thing.  Not to mention, not so much investors, but homeowners are so damn indecisive they take up a slot on my shcedule for 2 weeks and cancel the day before when I COULDA been working making money elsewhere, quite often.  Those that I ask for a dp NEVER end up pulling that crap.   But investors I do not request anything down, they usually become a client with repeat biz relationship and discounted, flat rate, prices.  I get a call to to a counter, I dont need to measure cuz I have a price wheter it is 4 feet or 40, it evens out in the end and they LOVE it.

Ken Spurgin · Answer

You know its too bad that contractors have gotton such a bad rap !   Ive been a contractor for 20 plus years ---

How do I know YOUR good for the money ?

I may start a job, get thru a huge chunk because you said you wanted to pay me in draws,  now you may pay me a draw or two, and all things may be fine, then when we get to the end of the project you may say "Oh jeez Im sorry I dont have enough money to pay you !"

Now I can lien your property all day long ---
BUT that still dosent get me my money - TODAY ! If I have to wait for you to sell a house before you can pay me.... Where does it say the contractor is the thief ???? Some of you better look in the mirror !
Luckly for me when investors have BURNED me... I have allready paid all my expences, labor, supplies up front so its ME that takes the hit !!

I WONT lift a hammer until you either give me 1/2 upfront or what I have been doing lately is have the investor deposit ALL the funds into a bank account with both my name and the investors name on the account----He cant pull it with out my signature and visa-versa

And honestly as far as letting the investor buy the materials --  HA -- All the average investor sees is the "pretty" side of things not the working end of things, and becides sometimes you have no idea "whats behind that wall" so 9 out of 10 times the investor dosent buy the right items, enough items or whats really needed to put the project together.

I'll be more than happy to go to the Home Depot and get everything ordered, shopped, picked up and I may even deliver it ( usually have Home Depot deliver it...more money out of your pocket !)  as long as the investor understands if the home gets broken in to its NOT going to be my responsibilty all of his materials and supplys just walked out the door !!  Oh yeah...Im gonna charge you by the hour to shop, if thats how you want it done.

And again have any of you investors ever tried to do a rehab when all your materials are in your way and you have to move them 100 times ? (probally gonna cost you more money, and take more time)

Minna keep collecting your 1/2 upfront ! I know I will !
You investors have to be real ! Whats my recourse ???  Lien your house ???  What if you decide to hold for a few years ??

HOW DO I KNOW YOU HAVE THE MONEY TO PAY ME ?

Not all contractors are bad -- Maybe your just trying to save to much money and not doing YOUR homework !!!!  You GET WHAT YOU PAY FOR !

How do you pay contractors you work with?

Most Popular Reply