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

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.

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.

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. :)

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.

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.

In selling hundreds of jobs I can count on one hand the number of customers that had an issue with putting up at least 30% on a job. If they aren't willing to do that then I would walk away. If that job is on the large size for you company then you have a lot to lose if he doesn't pay you. It's an equipment deposit and the way I see it it's a binding agreement once you have that money in your hand that the job is yours and they arent going to switch gears and toss you out after you put all the effort into the planning and ordering stages. I would be cautious and probably wait for a good customer that appreciates your efforts and respects your business policies.

It seems the concesnsus here is correct - in that you absolutely should ask for a deposit and then have a payment schedule. This is a fair and reasonable way to conduct business. Your prospective customer should understand this as well - doesn't he for his business ask people for deposits and payments. A progressive payment schedule based on ordering equipment and then percent of project completed is common and fair billing practice. It is aboslutely a red flag if he refuses to pay up front or based on a schedule. Any time and effort you already spent on selling this project would easily be eclipsed trying to get payments for money owed during and after the project. You both can do credit checks on each other also.

It's common for our company to finance projects ($1m+) - however, the burden is negotiated with our vendor/partners through extended payment terms - dollar amounts are relative. billing for stored materials is very common - most of our contracts state due upon receipt (need to provide packing lists and pictures) - by the time all the paperwork goes back and forth at least 30days before we get paid then our vendor(s). make sure you are NOT invoiced prior to receiving any/all material. see that orders ship complete - if in phases "hold for release" - do your best to avoid additional freight - that can be a large, unexpected expense.

Having followed this string, I agree with the RED flag over YELLOW - you deserve the same level of trust that the customer demands of you - so do any vendors involved in this deal. shop, partner with vendors carefully and negotiate reality, use their sales force - they too are hungry. only advice I can give: until you are paid for material from end user, YOU own it - buyer beware!

p.s. - just received an email from a new vendor we are finalizing a purchase order with - below is tag from his email signature...

Customer 1st

“Moving at the Speed of Trust”

Get a contractors license and lien the property if they fail to make a payment.

I second protecting yourself with a lien.

We do quite a few large jobs, and are generally not paid a deposit on them. However, each of those jobs involves two way bonds (performance and payment) between the owner and a general contractor who oversees our work. We are generally a tiny percentage of the overall budget (1-2%), and I tend to call up some of the bigger subcontractors involved if I don't already know the score on the customer or general contractor. Payment on these jobs is via monthly progressive billing, and does allow for billing of stored materials, so we can generally get equipment covered within a few months of starting.

Liens can be effective, but doing them properly takes a bit of work. You will need to file a 'notice of commencement' with all current lien holders on the property (which i believe is public record). Our contract packet includes a list of lien holders - so I have never needed to figure it out myself. Upon completion there is a time limit on how long you have to lien. There are companies who can do all this for you.

Gary,

How well maintained is his property? Have you noticed maintenance issues that have gone unaddressed during the time you have been visiting the site. This could be another red flag.

Tell them to have a nice life and move onto the next project. There are too many opportunities out there to be stuck with an end user who wil tie up your resources and might not pay you. Intergrators can be selective in the jobs they take on.

Milestone payment it. Else work with an independent (solicitor / accountant) to hold the deposit in trust, until the release clauses are satisfied.

Red flag to me as well... I'd tell him that my deposit is not an option, it's a requirement and then provide him past customer names to ease his concern.

Problem customers are always....a problem up front. Sound like this apartment complex owner is warning you that he doesn't want to pay, can't pay, or doesn't trust you. Any 1 of the 3 reasons, is a reason to walk.

I understand you don't like to walk away from projects but it comes down to if he doesn't pay or only partially pays can you absord the loss? 100% profit on a customer that doesn't pay is still 0.

I'd suggest trying to put the ball back in his court. If you can't trust your security vendor then who can you trust?

If you are still finding it difficult to walk away, I suggest you work on a compromise where he gives an advance/deposit, maybe only about 25% of project value, you give a bank guarantee to cover the amount advanced, valid for the duration of the entire project, you schedule the work so that it is done in segments, say one apartment block out of four, so that you are able to show and satisfy him that the actually installed system works as you had demonstrated, get paid about 90% for the portion already completed by you, while still holding on to the advance to use for further purchases for the remaining part of the project. This way he has nothing to lose since you have provided a bank guarantee, and you too have very little to lose if things do not turn out the way you would like them to. The basic objective is to stay as far away as possible from litigation, since that is a no win situation, and try and do the job without getting stuck with a major loss.

I am sure we would all like to know what you finally decided to do.

John H. is right; the customer either doesn't have the money, or he doesn't want to give it to you.

If addressing #2 with escrow and milestone arrangements doesn't work -- then you know it's really #1.

At this point I think I'd be seriously considering cutting my losses. OP has already invested a lot of time in creating a quote, and all these other suggestions - setting up an escrow, arranging financing, securing a lien, etc. - are even more time-consuming, some will cost even more money on OP's part, and none are a guarantee that everything will go smoothly. As EJ says, "Problem customers are always....a problem up front," and this one gives all the indications. Because as EJ also noted, "If you can't trust your security vendor then who can you trust?"

Remember, all the time you sink into trying to land this project now is time that could be spent selling a job to a less troublesome client. You've done what's required and generated the quote - the ball is now squarely in the client's court and should be left there until he's ready to return it, one way or the other.

Both customers and vendors can be reputable, or not.

Go Escrow or payment schedule or skip it. Escrow isn't as hard as you think. Most attorneys and some others will do it for you. Many banks will as well.

Could you break out the equipment differently, and get paid in steps like design, wiring, infrastructure, then the bulk of cameras? Or install cameras without infrastructure, and bill for that?

At my current job (university), we don't do deposits, however, as long as we issue a contract and PO, we pay. We may take 60 days to get the invoice through, but we pay.

At my 1,200 unit condo complex, where I was on the board, as Treasurer, we also didn't do deposits, though we could pay in 2 weeks, normally. We also always made payments when there was a contract.

I previously suggested negociating a milestone / progress payment shedule however it really depends on the final value of the customer to you as the integrator. In terms of both long term business relationship and short term finanical gain, what is it worth to you as a business?

My gut feeling now tells me it isnt worth it and cut my losses and move on.

Joel

It's been a long time since I operated a security company but there are some things that never change. First you need to make sure you have your ducks in a row. Are you licensed? In California, as a contractor you can only ask for a 10% contract deposit. From there, you file a preliminary notice saying you have the right to lien the property. If you don't have a city business license where the job is, that can create a problem if his intent is not to pay. Payment upon delivery of materials is common when agreed upon in advance and you provide a lien release for that portion. Final payments and hold-backs should be clearly in writing, on the contract. I received a $178,000.00 deposit on a $467,000.00 house alarm with no question because the owner understood the issues. For a $15,000.00 job this seems like a nightmare just waiting to happen. It's very likely he will use your design if that's any consolation.

You're actually correct and incorrect. In the State of California, the Contractors Board only enforces residential construction contracts, not commercial. The Contractors State Licensing Board is a division of the Department of Consumer Affairs, and companies are not considered consumers. This I've personally seen in litigation, so if it's a business to business transaction, what's in the contract and agreed to is what will be enforced.

Just wanted to update the topic with news of the project moving forward. The client and I met for breakfast this morning and hashed out all of our concerns. He mentioned that he had spoke with people whom he holds in high regard that gave my company a very good rating. Some of these people knew me personally, some professionally. He didn't want to name names, so I am somewhat curious as to who to thank. I was able to follow him to his office afterwards to pick up the deposit check.

Who said good things never happen before lunch?

I appreciate all of the commentors in this thread giving their two cents. It was very helpful to me in knowing that I should stand my ground with the deposit requirement. In the end, standing my ground actually gave my client more respect for me and my company. He knew we weren't desperate for his business, which to him was a sign of strength.

Gary, great to hear and thanks for posting such an interesting topic!

Maybe the customer was an IPVM subscriber and saw he probably wasn't going to get his way....

Seriously congratulations, and try to keep in mind not all customers try to be difficult. While some vendors have been burned by some customers, there are customers who've been burned by some vendors, so they could be wary based on experiance, not always because of a negative disposition. And when it comes down to it the biggest factor in sales is customer relations. I've sold computer services and systenm to clients before who told me outright I was more expensive than some other proposals they got from other competitors, but not so much that it outweighed the level of confidence and trust I somehow conveyed to them.

Good luck on the job and I hope it goes well.

Looks like Marty called it right (back on Page 1)! Congrats on landing him, Gary :)

Standing by your reputation and refusing to bargain from a position of weakness feels great, don't it? Beats groveling for potential profit ANY day... :)

...ok, well maybe not ANY profit. Dude wants to drop a million on me I'll kiss his ass twice a day. :)

You've made some positive forward movement, congratulations.....but no job is complete till the final check clears.

Just saying don't get caught up in the victory, keep to your plan.

Just an update to this story. The install went very well. I will be meeting with the owner and staff this week to train on the system. Hopefully I won't have issues with the final payment.

Given your last post "after breakfast" before you started the project, I think you will collect all that is owed. Great job!

I just wanted to follow up on this post in case it is viewed by someone else later and wanted to know the ending.

The customer made the final payment, including a few small additions that were added during the first phase. We are also moving on to a possible second phase at the moment. The cameras have been such a welcome addition to the community there that they realize just how helpful they are going to be to the site manager. She basically has eyes all over the campus (minus a few spots that phase 2 will cover) right from the comfort of her office.

She has already busted people that would have went unnoticed prior to the cameras. Some of them were failing to clean up behind their pets. A few were non-residents using the pool. She even scared away a potential kidnapper, who happened to be a past resident that was evicted for issues with being involved in misconduct with a minor resident.

In the end, they are thrilled with the system and we are proud of the outcome. It will be a nice addition to our portfollio.

Great ending and way to go with customer service! Good job!

Great outcome! Congrats!