Are we crazy for doing our subcontractors' paperwork for them?

[Greg Rubertone]

There's a common piece of advice on here from CPAs and veteran investors: strict "No Invoice, No Pay" with your subs. My brother and I tried to live by that on our 4 active flips here, and honestly, it just caused unnecessary friction with our best guys.

Our plumber has been with us since house #1. He doesn't use a laptop. His "invoice," if you can call it that, is a text message with a dollar amount on a Friday afternoon. When we started asking for official PDFs before we would send his Zelle draw, he looked at us like we were auditing him. It felt like we were treating a trusted partner like a corporate employee, and it made Fridays weird.

So we made a hard pivot. The relationships are too valuable to risk over admin work.

Instead of forcing our old-school tradesmen to do paperwork they hate, we took 100% ownership of it. When a sub asks for a draw, we generate the invoice on their behalf, pay them, and hand the documentation to our bookkeeper. We eat the admin burden to keep the relationships clean and the CPA happy.

Curious how other operators handle this:

1. Are we crazy for doing the admin work for our subs?
2. If you DO enforce "No Invoice, No Pay" with guys who work out of their trucks, how do you do it without insulting them?
3. For the ones doing what we are doing — generating paperwork on behalf of your subs — how are you actually handling the volume?

Not looking for software recommendations. Just wondering if anyone else has accepted that operators have to carry this burden, or if we are just being too soft on our guys.

[Bruce Woodruff]

Quote from @Greg Rubertone:

Quote from @Bruce Woodruff:

Like @Richard F., I may have helped my subs once or twice...but it is not a good business model. It just isn't!  And it would certainly open you up to at least some degree of liability by getting involved in another business's paperwork trail. What if you make a minor mistake and they get audited and drag you into the mess?

I believe it is far better to just keep hammering your Subs to step up to the plate and act like grown men. If you are giving them consistent and profitable work, they will eventually come around. Would any sane Contr. throw away $100k worth of work every year (and from a single source)?

They will come around, you just need to be consistent in your demands, don't fold right away just because they whine and stomp their feet.....

Also, I've found that Subs that are sub-par with their paperwork are usually lacking in the other legalities - like Workers Comp, Liability Insurance, License, Bond, Lien Releases, Etc...

Ultimately, It's far better to let them go and find legit, grown-up people to do your work. These guys are acting like children and being disrespectful to you. Do you really want to build your team with people that can't figure out something as simple as proper paperwork? Are you just hanging on to them because they're cheaper? 

I mean, seriously now, submitting a proper invoice is pathetically easy. Anyone that can't/wont figure it out has many other deficiencies, you just ain't seen 'em yet.

Bruce, I was hoping someone in the trade would give a reply so thank you. The liability point you and Richard both raised is the one that actually lands for me. Getting pulled into someone else's paperwork trail and then being part of their audit problem is a real risk.

The part about sub-par paperwork correlating with sub-par everything else is very useful. That tracks with what I would expect, and it is a connection I had not fully made. The guy who cannot produce an invoice is likely the same guy who is fuzzy on his insurance and his lien releases. Point taken.

Where I will push back, gently, and genuinely curious how you would call it as a contractor: our best trades are not bad at paperwork because they are children. They are great in the field and they just operate analog. Cash, a handshake, a text with a number. In the DFW market right now those guys have more work than they can take, and the "shape up or ship out" line does not have the teeth it would in a softer market, because there are three other flippers ready to pay them cash tomorrow with no questions asked.

So as a contractor yourself, where is the line for you? Is a great-in-the-field guy who refuses to modernize his paperwork worth keeping if you carry that admin burden, or is it genuinely a hard no for you every time? I'm asking because you sit on both sides of this as a contractor and investor.

Hard no every time (well honestly, almost every time, there are always extenuating circumstances in life, right?)

Working as a GC on big money jobs (average remodel $500k) puts me at waaaay too much risk. So no way I can take a chance with a Flake - and yes, someone who cannot produce a simple invoice is a Flake, big-time Flake. What else are they F'ing up?

Very occasionally - on a small investor fixer, I could be persuaded to use a Flake for a brief period of time, like a week max. But it has to be desperation, and I'm nervous as h*ll the whole time....