New Customer Refuses Deposit On Large Job, What Should I Do?

I have recently been trying to close a large (for me) deal with a new client. I was referred to this client by a colleague of mine that was unable to handle the scale of the project. The project involves 24/7 video coverage of the grounds of an apartment complex. The complex consists of 4 buildings, parking areas, a swimming pool, and a commons / courtyard area.

My real issue here came after a few months of working with the owner. We finally came to an agreement over all of the equipment, gave an on-site demo, and have pretty much every nut and bolt accounted for.

The problem is, I usually require a 50% deposit on all projects, with the remaining 50% due upon completion. This client told me that since we have never done business together in the past, he doesn't trust me with a deposit. I have told him, that I am not going to special order a large amount of hardware for his project unless I have some sort of financial commitment from him.

And that is where we are stuck. I know that any sort of contract that we write up, agree to, and sign will be pretty useless. Sure you can acquire a judgment in the case of a default, but collecting that money is the hard part.

So I ask the masses here; If you were taking on a new client for a project that was large in scale compared to your average scale, would you start the project without a financial commitment?

I don't know if having them go through a leasing company might be a solution, but you may want to reduce the deposit where it just covers cost of resotcking and litigation fees.

Or do it in stages where payments are made after milestones are made or maybe groups of cameras are done.

You guys may also want to trade references. You should have some quality referances from previous clients if you're a good integrator. The prospective client should also have some good references from their vendors if they're not problem children when paying.

You should not finance the project if possible. What if you order and pay the equipment and then the customer stops the project or disappears? Break it in more pieces according to stage. Are you providing design documents?

Maybe with such type of customers the best way is to take a deposit but provide a bank guarantee?

We work like this on big, 1+ year projects:

  • 20% Deposit
  • 40% Ordering of Equipment
  • 35% Delivery of Equipment
  • 5% Completion

"This client told me that since we have never done business together in the past, he doesn't trust me with a deposit."

That's a yellow flag to me. Is it really that he doesn't trust you or is he using this as an excuse because he lacks the money (or at least the cash)?

Deposits are fairly standard especially when there's equipment to be ordered.

You're rolling the dice here a little. Do you have a sense of what the customer's financials are and their track record in paying is?

I generally get 100% of equipment as deposit and labor,tax,shipping etc on job completion.

John, it was a RED flag for me. I am literally about to walk away from the job and never look back. Although I have considerable time invested up to this point and that is my only reason to try to keep it. As for the references, we offered them but he said he didn't know those companies, so it had no bearing on his decision. He asked if we had similar projects and I (maybe mistakenly) was honest and told him that this project was larger than our standard clientele. We have had some projects larger ($$$), but the included more computer wiring, wifi, and PCs. Maybe that scared him somewhat, but I am very careful of not overselling and pushing BS. Maybe I am not cut out as a salesman....

I sincerely hope somehow it ends up working out positively for you and the client....... however, if you do pass on it, maybe one of your IPVM colleagues might be willing to pick it up. ;)

For now, though, I think the implement in stages plan might be the most feasible plan. Maybe employ the marekting rep for the VMS to do a dog and pony show for the VMS to the client snce that will be the core of the system, to make sure the cliient is comfortable with it, then implement the VMS and cameras in small incremental stages, getting payment at each stage.

To solve this problem in the past, clients have hired me to oversee a project and approve the security contractor's invoices to see that they are reasonable and that the work has be properly executed. Typically, the client deposits money in a special escrow account at a bank. The contractor is allowed to invoice progressively for equipment purchased and labor provided. As the consultant, I approve all invoices and tell the bank to release funds when appropriate.

Normally, the contractor will order equipment, and when it arrives, will invoice for the equipment's value. As the consultant, I will inspect the equipment, and if it matches what is being charged for, I will approve the invoice for payment. We may or may not require that the contractor store the equipment at the client's site rather than his own shop. Similarly, as the equipment gets installed, the contractor will bill for the work done and again submit an invoice. I examine the work, and if the bill seems reasonable, I will approve it for payment. This goes on for the duration of the project until it is completed.

Perhaps some type of escrow arrangement like this could be arranged for your project?

Gary, my point bout references was NOT about yours but about his. In other words, what is his track record of paying? Does he have a history of pulling stunts in paying? Etc.

Also, I'll second John Lord's point about 100% money down on equipment. Have you presented it that way? It will likely come out to a similar dollar amount but might be more understandable. Regardless of what happens, he is going to keep that equipment so he should appreciate that.

he has never done business with you so he doesn't trust you with deposit... it isn't too often we hear that from customers but it goes on... the frustrating part of that is the comment goes both ways... "i've never done work for you so i don't trust you to not get a deposit", a customer (potential) wouldn't like to hear that so why would they say it... it would be interesting to find out what this customers history is with past contractors it may not be good... your request for fifty down fifty complete is not unreasonable, many contractors around her have the customer pay for all equipment up front and labor when completed... there have been several times where we have financed project with the understanding of receiving full payment shortly after completion... sometimes it works well and sometimes we feel like a bank... that is only ever done with reputable customers... good luck with the project if you finalize but don't feel bad about walking away...

Depends on references for sure. However if the client does have good references, then definitely take the job. More than half my work I dont take any advanced payment. First payment is usually on delivery for me.

Banks have services for scenarios such as yours. The client deposits money in a bank you both trust and can act as an escrew. Its really simple. You cant lose much because if you dont get paid you can always reuse the cameras in other projects or maintenance parts.

The real factor that will eventually lead to your decision to take the job or not, is your risk acceptance level. If this guy (potential customer) is any kind of business man himself, he would understand your position in this case. As a matter of fact, he may be just testing you to see what kind of business man you are...

If he maintains his rigid position of 'nothing down', I'd tell him to pound sand.

If it was a test, you win. If he's just a hard ass that wants to push everyone around he deals with, then you still win. :)

Marty, that is exactly how I think about him. Either he is testing me, or he doesn't have the money. Either way I win. John, the 50% wouldn't even cover the hardware. The hardware costs are actually about 75% of the total project cost. And he knows this as well. Another thing I failed to mention was that he asked if he could write a check directly to my vendors, instead of writing me the same check. My response was you don't trust me, even after meeting with me on many occasions, you can drive 10 minutes and visit my store, probably find my home with a few minutes of searching, yet you prefer to mail your money to an unknown (to you) distributor? And your only reference for this distributor is me, who you don't trust with your money? I had a good chuckle with that one.

That is so rude (to offer checks to your vendors directly). Escrow is now a minimum.

after hearing that i would walk away... this guy isn't worth it...

The more you describe, the worse it gets!

The other risk I see, even if you get the deal, is how big of a pain is he going to be during installation and commissioning? If he's like this now, how unhappy / unreasonable / unrealistic will he be when evaluating the system? This could drag on the project, cause cost overruns, haggling over final payments, etc.

I'm looking into my crystal ball... I see Gary taking this job... and I see the client hanging over his shoulder through the entire thing. And this part is a little foggy, but it almost looks like the client is offering to help in order to reduce costs...

The main problem I see is you have brainstormed a new design build product and proved with a demo it works. You have probably also supplied the customer with cut sheets, product numbers, etc proving how good your company is and how easy it will be. Now he knows all and might try to go around you. He still has the product on paper and knows it works. He can hire whomever he wants to install it now. If you don't get the job I would invoice for the design of the system.

What does your colleague think about him?

I am skeptical that this end user would agree to pay for the design at this point, given his general approach (not that I am saying he is right, obviously). That noted, we have a post on this topic: Stopping End Users from Shopping Quotes.

This has all the makings of the kind of story that ends with "... and that's why I NEVER take a job without having my costs covered upfront anymore."

I think Matt's crystal ball is probably correct. You need to set some firm boundaries and timelines with this guy.

You expecting 50% down for such a large job is nothing out of the ordinary and pretty much any other company with a brain would offer something similar. This guy sounds like a genuine pain in the rear and I agree with Matt, even if you did take this job, this guy is going to be like a helicopter and hover over your every move. Unless he is willing to pony up 50% of the money like a normal person, I would call it a small loss on time spent and move on.

Look on the bright side though, maybe he WILL take your spec, buy a bunch of the gear grey-market, get someone else to install it who won't know what they're doing, and then end up calling you in to find out why it doesn't work right... and you can charge him appropriately for your time, along with a monster annoyance fee.

Just heard from my friend that referred the project to me. He received a call from the customer asking about the history of my company and info about my business partner. Get your popcorn ready!
Gary, What is the total value of the job?
Grand total for phase 1 is $15k.

this guy seems like a real winner... not sure if you time is worth it... or perhaps you can agree upon a immediate payment right after training... seems to me though that he may be the type of customer where nothing was done the way he wanted it to be and the job drags on forever before they sign off on it...

I would recommend working out a MILESTONE payment schedule which would be acceptable to both parties.

I would recommend working out a MILESTONE payment schedule which would be acceptable to both parties.

"maybe he WILL take your spec, buy a bunch of the gear grey-market, get someone else to install it who won't know what they're doing, and then end up calling you in to find out why it doesn't work right.."

You'd much rather be in position to be hero and fix a someone else's problem than blamed for a system that doesn't work right the customer wouldn't pay for the right thing.