Your thoughts on speeding up payouts???

[Kays Supply]

I would like to bounce a couple ideas off you guys. I am having a hard time getting my contractors to pay on invoices. They let me finance their spec houses and custom built homes. I go two to three months between payouts. The only thing worse than no work is having work that you have paid all the wages, material, insurance, and vehicle expenses on and then no pay.

I am thinking about either a 2% discount on pay by the 10th or a 1% fee if not paid by the 10th. Which one would stimulate a payout, but not offend?
Please let me know which one you would respond to.

 

[Dmace]

Late Fees = Bad

Incentives to pay early = Good

We always offered a 10% discount ($500 max) if NET paid in 15 days and 5% discount ($500 max) if paid within 30 days. Anything after that is full price and more then 2 months unpaid gets a collection notice sent.

 

[powerstroke444e]

We had one local contractor remove his drive & dirt work he installed. He seems to get paid on time ever since. We're net 10 then a personal visit to here the sob story. If they seem shady require a deposit, no deposit let some one else do it for free.

 

[EddieWalker]

I have one supplier that offers me an additional 3% to pay cash when buying materials instead of using credit. That's enough to make it worthwhile for me.

Eddie

 

[Eagleview]

It's a little different for me but I demand $1500 paid by direct deposit every afternoon into my bank account . That way i'm only out one days pay if they go belly up or decide to be a shonk . If I let them go for say 10 days on a big job and they don't pay , i'm out $15,000 + tax = $16,500 .

I couldn't sleep in your position . Spec homes are a big ? And some of the owners are a big ??????????? I'm hoping i'm wrong but it will only be a matter of time before you get hurt . You need to be firm , your not a bank , if they can't borrow money from a bank to pay you for supplies you dont want them . If they wont borrow money from a bank because they have to pay interest on a loan and not with you , you dont want them .

 

[tlbuser]

I would like to bounce a couple ideas off you guys. I am having a hard time getting my contractors to pay on invoices. They let me finance their spec houses and custom built homes. I go two to three months between payouts. The only thing worse than no work is having work that you have paid all the wages, material, insurance, and vehicle expenses on and then no pay.

I am thinking about either a 2% discount on pay by the 10th or a 1% fee if not paid by the 10th. Which one would stimulate a payout, but not offend?
Please let me know which one you would respond to.

We are not banks and are not in a position to finance anyone's projects. After 30 days, if not paid I will stop working on their project until paid. No discount if I'm floating 30 days of goods and time. After 30 days, charge the max your local jurisdiction will allow, otherwise you end up losing money, not them. Business buddies are usually only in for whatever they can get out of the deal.
I like food and toys, Buddies don't buy me either one. Cash does.

 

[LoneCowboy]

You need to have a clear policy that you are willing to enforce.
A customer that doesn't pay is not a good customer.

We agreed to a price, I'm willing to bill it because not everyone writes checks everyday (heck,I've never even met some of my customers, I just send them a bill and a check shows up) but I do expect to be paid and paid on time.

If you can't pay on time, it should cost you money. I'm being a bank, banks charge interest, so do I.

After 3 weeks, you get a friendly reminder call (people do lose the bills, they get lost in the mail, whatever, stuff happens)
After 1 month, you get a "you're late, you now owe X + X%"
After 6 weeks, you get a not so friendly reminder call.
After 2 months you get another letter with X+2X% now due and the bill is not satisfied unless the late fee is paid and in 2 weeks they will hear from my lawyer.
After 75 days, you get a call from my lawyer and now you owe lawyer's fees on top of it
At 90 days, the next step is to lien the property (which is yet more lawyer's fees).

You have to be hard nosed about this. The squeaky wheel gets paid, the silent one gets ignored. You wouldn't work for free would you? Of course not, so why are you?

it's by far the worst part of the job. I've never gotten to the lawyer part, but it's all set up to happen. It takes a lot of work and frustration to get paid from some people, the interest pays for that time that I had to spend to call/write/cajole you to pay your bills.

Oh, and people who pay late all the time, they don't get the best pricing. it's only fair. And anyone over 30 days doesn't get anymore work done (obviously).

 

[mscheer772]

FYI

In a bankruptcy any $$$ paid out is considered preferential payment and must be returned to the court. Guess how I know this. I don't know if that's unique to Illinois or common throughout the US.

Two concerns that an owner will always have: receivables and employees.

I've never had either a bonus if net or penalty if late work.

Leins are always a way to get their attention.

 

[studor]

3% for Cash
Credit only to a max (look at credit rating)
Prompt payment discounts usually do not work -- they do not have the money to start with
Quick to change to COD
Sounds tough but when one of these guys stiffs you for a months earnings you might feel a little different.

 

[Kernopelli]

In our PermaCrete business, we always asked for 50%down/50% upon completion...I know that isn't a realistic option for you but it worked well for us.

In our rental business, we have found that incentives were ineffective and late fees made for prompt payments. It's amazing how you can bend over backwards for somebody while giving them break after break and they get p*ssed off when you charge them a fee. It also makes them very aware of when their payment is due next month. I suspect more than half of your contractors are just like my tenants and are going to take it personal if you start implementing late fees after they are used to having a free ride for 90-120 days (or more). I think the best approach is to "soften the blow" by implementing both of what you proposed. A 2% savings incentive for paying by the 10th and a 1% penalty fee after say 30 days in all future contracts. This way you have given them an option to save money up front, pay what they owe for 30( or X amount of days) and penalized for anything longer. You can explain to them that late pays are killing you (and whether or not they want to admit it to you....everyone understands that), you have also given them fair options and you have made it clear that you are running a plumbing business but if they want to treat you like a bank you can act like one.