Get the instalment before a stage starts, versus when it is complete

We have had a lot of comments recently about difficulties getting customers to pay up. A lot of you have posted your own personal payment schedules.

There is no “book” on this: no one has the “correct” answer. But one contractor posted that he asked for 50 per cent upfront.

Dwayne Butler (Master Edge Homes, Markham, Ontario) wrote this reply:

“There are several ways to make up a payment structure. I, for one, will take a 10 per cent deposit and then for all stages the customer provides a cheque. So, if a job has a $100k price tag, there may be 12 instalments.

You are purchasing items before you are actually on the job so you charge the customer for them. For example, kitchen companies want a 50 per cent deposit when they haven’t even started the job – but they need to get the kitchen into production so they ask for an instalment for this amount. [In a similar way] we have changed the way we [ask for payment] – and that is to get the installment before a stage starts versus when it is complete. This obviously allows for better cash flow.

Not many of my customers will give me a 50 per cent deposit. In the eight years we have been in business we have always been paid by the customer.

The suggestion to take up to 50 per cent at signing – and then another percentage the day you start – is something that would not fly here in Ontario. Never mind the fact that, at the beginning of a job, I have not spent over 50 per cent of the contract dollar amount and so I could not justify those terms.

We do medium to large renovations and I can only see those 50 per cent upfront terms working for small renovations (less that $10K). I cannot imagine telling a client that we are going to be taking a deposit of $250k for a $500k contract.”

Edited version of Dwayne Butler’s post on Jan. 23, 2014