Mike Draper
Having trouble collecting your holdback? Read this…
Canadian Contractor ProfitabilityNobody can afford to give a 10 per cent discount to a customer by being denied their rightful holdback cheque. Our contractor coach Mike Draper gives you some tips on getting your final cheque.
As we all know, the reason for the10 per cent holdback provision in a standard renovation contract is to protect the homeowner from liens. Subtrades and suppliers who have not been paid for their services for the general contractor have 45 days from the signing of the substantial completion document to place a lien on the homeowner’s property. By allowing the homeowner to hold onto that ten per cent, the holdback provision is supposed to ensure that the homeowner has some protection against these liens. That’s the theory, anyway.
The trouble is, most homeowners don’t know that a holdback is all about lien protection. Some homeowners will hold onto the holdback even if a contractor goes to great lengths to show the homeowner that all subtrades and suppliers have been paid. These homeowners believe the holdback is strictly a device to make sure the contractor completes the work to their 100 per cent satisfaction. The contractor can often feel held to ransom. The homeowner can often feel that they need to keep the holdback to stop the contractor from walking away from the job with important final details unfinished.
How can a contractor guarantee they collect that all-important holdback? Communication with the homeowner is the key to a successful renovation at all times, but it’s even more important during the last couple of weeks of a project. As a result, contractors need to “lean in” to get their holdback. You should work hard to finish your customer’s renovation on time and with the very best quality you can provide. Like fine millwork, customer satisfaction is dependent on the final finish. Stay in constant communication with the homeowners about what is left to complete on a project, when it will be completed and how much you are expecting to get paid upon completion. Doing so will get you paid your holdback amount faster. Finishing strong will also make it easier for you to ask the homeowner for referrals, testimonials or reviews that can help you close similar projects – and possibly even more lucrative ones – in the future.
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The best way is to “liberate a starting deposit” (steal something from the customer when they are dazed and confused at the start of the project)……… just kidding. The best way is to not be a spineless groveling desperate blue collar donkey. Present the customer with a contract that clearly states your terms and conditions. Discuss beforehand what is required by the customer in terms of deposits, progress payments, and final hold back. Too many tradesmen enter into the arrangement and place themselves in a humble begging position. Stand tall and understand that the customer has demands and you have demands. You deliver, so they should deliver.
One of the biggest reasons for hold back issues is poor communication. Define the scope of work, have them sign to accept the scope of work ( too often verbal conversation are not remembered correctly, or never actually took place. Memory is tainted and subjective by the recaller). If you can not talk frankly at the start what makes you think it will be any better later on. (when customers over spend, blow their budget, or were short on funds).