By Daniel C. Brown
Car-repair commercials often blare, "You can pay me now, or you can pay me later!" Unfortunately, that sort of payment option doesn’t work for remodelers. Like most retailers, remodelers need to be paid now -- not later.
Scott Gregor, CR and president of Master Plan Remodeling Design-Build (Portland, Ore.), says that his payment-collection policy is the result of lessons learned through experience. He now obtains progress payments. "You don’t get to drive on gasoline until you pay the service station, and you don’t get to eat groceries until you pay for them," says remodeler Scott Gregor, CR. "Our business is no different."
In the past, Scott’s firm, which has annual revenues of $1.8 million and an average project cost of about $250,000, had problems with collecting payments. The company would finish a phase of construction, such as drywalling, and payment would come due, as specified in the contract. But despite their affluence, clients would find reasons not to pay.
Change orders were another problem. "Change orders are a loss area," says Scott. "They interrupt the flow of work. You have to stop and rethink the project schedule. I wasn’t getting change orders paid at their issuance. So I’d get to the end of a job, and have $20,000 or $30,000 of change orders sitting there."
Now he charges an extra eight percent for changes to cover the costs associated with change orders. And he collects payments for them when they’re issued–before the work is done. "The key word is 'before,'" says Scott. "When I installed this system, all my collection problems went away."
Responsibility for communicating the payment schedule lies with the sales people, he adds. "If the clients understand the rules going in," he says, "they almost always pay on time"
Scott writes a very specific payment schedule into the initial remodeling contracts:
- 10 percent of the total is due at contract signing.
- 30 percent is due the first day of work.
- 30 percent is due before drywall is installed.
- 25 percent is due before finished plumbing is installed.
- The final 5 percent at substantial completion.
A remodeler must set the rules and let clients know where the foul line is, says Scott. "If you don’t handle customers as if you're the teacher, they will take over."
Half up front
Texas remodeler Robert P. Dawson, owner of Classic Kitchens in Humble, Texas, asks for half his money at contract signing and the remaining half at completion. Much of the first payment goes for cabinet doors, drawer fronts, and the down payment on countertops for his projects, which run between $8,000 and $15,000. "If I leave somebody's house with a signed contract and a deposit, I very seldom have any trouble with payments," he says.
The firm also insists that both husband and wife be present and involved when they choose the cabinets, countertops, and other products requiring a choice of design. Having both decision makers present is a basic of good salesmanship, but too many remodelers overlook it. Maintaining such a policy ensures that one spouse won’t veto the other's choice of design later.
"Disagreements about cabinet choice, for example, can result in delayed payments–or worse, legal disputes," says Robert. "It’s not good business to do business without the other half there."
The company insists that the final payment be paid at completion–not a month later. "I give them a date when I'll be finished, and people pay [on time]," he says. "They always pay. Once I had a customer who paid two days before I was finished. When clients know what is expected of them, they usually keep their end of the bargain."
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