How would you structure the payment schedule on this job: We are wiring up a building with access control/cameras, etc.. It is an existing building and in theory, the job can be done from start to finish over a few weeks (as long as it takes us).
It is a pretty large job at about $100k with about $65k of it being material. Normally I do 50% depost and the rest when done, but in this case the 50% is not going to even cover the material. What do you suggest?
Thank you
1/3 to sign
1/3 to start
1/3 when completed.
Operate as a well financed company, Do the work.... bill them after 100% completion. Asking for money up front is a no no, asking for money in the middle of a job is ridiculous as well and makes you appear as a nickel and dime company OR you are dealing with the wrong kind of clients. Im curious what your margin is with 65k in materials + as you say a month or so Labor costs? and only a 100k deal? Is this all the market will bear in your area?
So you never get a deposit from your customers? Do you finance all of your customer's projects internally?
I agree with Michael. I’m not a bank. I’m not here to finance your projects. If so, I’m surely going to charge way more for the risk involved. If you have an issue with putting skin in the game, then I have reservations as well.
We usually do 50 down 50 on completion. In a case where it’s more materials than labor, you can try to negotiate what is best for you. Communicate with your client and see how they feel about covering materials up front, labor on completion.
We ARE here to finance, bank interest is basically non-existent, if you have money why not turn it over and over? Skin in the game? Yep always. I Deal with the right kind of clients and loosing never crosses my mind.No one makes money leaving it in a BANK. Thats why banks loan money....Asking for money down is saying you are under financed,not making money, weak,or won't be able to make payroll that week, period.
I have to agree maybe its just because we have never been asked to put up a down payment but, if you came back to us with a proposal for work and asked for half down we would very quickly move on to someone else unless you are doing all of the work for one of our plant or campus expansions that have been known to go into the billions of dollars and take years to complete. That is not for security only though. For just security projects if you are asking for funding up front it looks to me like you do not have confidence in your work or that I will not be able to call you in 3-5 years to come back because you poorly manage your finances.
99% of the time yes. There are projects which span half of year to a full year. On those projects we bill them at the end of the month, on equipment installed not labor. Just to cover our lending ability, keep in mind these jobs are usually on the hundreds of thousands in equipment cost and that's just bad money management to finance that 100%.
You are 100% correct, we sell we deliver, done deal. We never ask for any money, at any point, on any job <250k until it is 100% completed, the customers have been trained and signed off as complete. It is a matter of principal. We dont ask for credit from suppliers, and we buy in bulk, so go figure? We have established a local business that is solid, built on trust and grows every year.
It is a standard business practice to request deposits. Have you ever been stiffed by a customer?
I've never asked customers to put a deposit down. Never been stiffed but we have had partners and fellow integrators that have had to put liens on customer buildings until they were paid. That is too far and few between to be a major concern for us though.
Really? Not sure who you work for but our clients are for the most part multi-million dollar general contractors and up front deposits are well, un-heard of. I would be embarrassed to ask quite frankly. Never heard of it being a 'standard business practice' in our world of business and we have been in business for over 20 years. We had [1] client that we had to write off in all that time and that was a small job for 20k.
It depends on the project. Sometimes we deal with the GC and other times we work with the end user directly. Most government or RFP projects we don't get a deposit but it depends on the customer. We just finished up a +1 Million IP video dollar project where we negotiated payments as we completed each building. We have healthcare customers that pay 60 or 90 days after the project is completed. We have other projects where we can 50 down and 50 at completion. All depends on the project/customer.
My experience as an integrator mirrors UI2 and Michael's last comment.
We never received any deposits up front, 100% payment on job completion, Net 30 terms paid in 90 - 180 days :P
These were anywhere from $2,000 projects upwards of $500,000. On some larger bid/spec jobs we would receive partial payment based upon a completion schedule, but that would be only for 5-10% of our business, for long-term construction projects (over 1-year timelines).
A lot of the work was NY State and Federal government contract work, and they do not, under any circumstances, pay a deposit. Even for our non-government work, we did not take a deposit up front. We would run credit checks on the companies and if everything was clean, a purchase order was all we needed to proceed. In some rare occasions, we would accept credit card payments if that was the only way a customer could quickly pay for a small project.
We rarely got stiffed, while some government agencies do take forever to pay, they always pay eventually. For the times we did not end up getting paid, I assume we wrote it off for tax purposes... but I thankfully never was involved in that part of the business. My knowledge of write offs is limited to Seinfeld episodes:
I agree with the statement that it doesn't look good to ask money up front. You should be able to hold some stock and have enough liquidity to wait. I would say this for B2B deals, since in doubt you can probably do a credit check and incorparate the cost for the check in the general costs.
For this specific deal I can imagine the customer will understand a payment up front given the high hardware costs. Then again, don't you have a line of credit from your supplier? Most of our customers have a 30 day line of credit. So if you plan right and ask payment after 21 days, you should be able to deal with it.
When it's B2C I would always recommend some form of payment up front.
Thanks for the good discussion. I've added this to the list of future survey questions.
For what it's worth, in my experience, both in the industry and personally, the norm is contractors asking and receiving partial payment up front.
We do our projects on a fixed fee basis, and usually get 50% up front. Sometimes we do 1/3 up front, 1/3 after a milestone, and a 1/3 after completion. We are on a construction project, and that is done on a schedule of values where we invoice based off Milestones. I can work with that because we know there are funds available, and the payment process is very structured. We know when we will get paid and can plan around it.
I really don't care how it looks, that is how we operate. I do what is good for our company.
Recently, we had a management company sign a contract on behalf of their client, and told us a deposit check was being processed. Great, we put it on the schedule, ordered all the material and were ready to go. Guess what, the client and management company broke up and never told us. Only after we asked about the deposit check, were we told they were no longer responsible for the project. Now we have the material, and still trying to sort out the details from the new management company.
Vendors offer Net 30. Depending on the project, you are going to order the material, wait a few days for shipping, stage it, then start the project. There's a pretty good chance, you won't even be done with the project before your invoice is due, let alone be paid.
Vendors offer Net 30. Depending on the project, you are going to order the material, wait a few days for shipping, stage it, then start the project.
We recognize this issue in our costumer base. We created a solution where we offer them to let us know when their project is so we prep their order and ship on the date they need it. The net 30 days starts at exactly that date so their time to manage with their customer is as short as possible. It means we play bank a little, but that's what you need to do a distri anyway.
Thank you for your honesty....We do care how we look. How do you go about getting 50% up front from a nationally recognized General Contractor or state or city government clients? We do not sell to pizza shops or any small commercial businesses so our exposure to 'riff-raff' is limited in that respect. It just goes back to being a well-financed, well managed company. We started with nothing many years ago and build this company from the ground up, why change now? Save your profits, buy everything with your money, pay no one interest and you will be a success before you know it. Our style is different I understand that but it works for us. Do you offer your employees breakfast and lunch everyday? We do. I have 37 employees, all full time and I hope they are all happy. I take care of the people that have made us a success I could not have done it alone......Take my word support those who support you....
And that is typical of the range of business models and client bases the integrators here on IPVM have. We are 2 years old, with no capital, no loans, etc. I started this company out of my house, with a dream and a couple thousand in credit cards, and a lot of sweat. We don't work with government or GC's. Not yet. When we get there, I understand payment terms may change.
Now we have an office, a few people in the field etc. I dump all the profit back into the business for marketing, hiring key team members etc. I would rather deal with clients who are paying deposits that allow me to fund my growth than get a huge government project that has me sitting on money for several months. I wouldn't be able to grow.
The vertical we work in, people don't blink at deposits.
I do not see us as being weak, or in any more danger of going out of business than any other company. We have a good client base that gives us repeat business, and we are only getting better.
I am pretty sure I have heard "Use other peoples money" a few times... :)
This is all fair and valuable information. I however was simply speaking on the perception of my team embedded as corporate security for a company with well over $110 billion in revenue annually. We have never been asked to pay up front and frankly we wouldn't accept those terms unless it was a long or expensive project. We do not pay with credit cards or seek funding from a bank we pay via electronic transfer upon receipt of invoice, generally within a few days of project closeout.
I was not trying to imply that you should not seek down payments nor that it is not the norm simply stating that we would view it as described above. For smaller businesses that do not share the same diversity and revenue stream as ours such as the local grocery store or pizza joint sure down payment is fine.
It is the same way I view HIKVision cameras. They have a place in small businesses that really don't have any confidential information or IP that would ruin them if discovered so HIK cameras are a great value for the quality received. However for us the potential breaches and losses that come from these breaches are not really worth the risk to save a few thousand dollars per project. Different solutions for different customers.
Depending on where you are, there are contractor regulations defining how much you can ask for as a deposit. That should let you know it’s common to get one.
Deposits can be seen as a commitment stronger than a signed contract. They can be considered a weakness if it looks like you couldn’t do the work without it.
Progress payments tied to signing, delivery of product on site, percentage of completion, final payment and retention can be spelled out.
I wouldn’t have asked for a deposit on a small job, I did ask for the allowed 10% on larger projects and spelled out progress payments.
I agree with Michael on this one 1/3 up front 1/3 on delivery and 1/3 on completion especially if it is a new client. Maybe this is a new topic but I am curious what you are charging for installation labor. You say your hard costs on parts is 65k +30% margin? $84,500 and a few weeks for installation assuming 3 for 3 guys 360hrs so $15,500/360=$43.06/hr this seams very low. I must be off on the man hours for this project make sense. 74,500@ 15%profit on parts $25,250@$70/hr still seams low what area of the us are you doing this work?
We deal closely with companies whose revenue is in the multiple billions of dollars. I have never had one complaint from procurement about a deposit. Often, they bring it up and ask if we will progress invoice or bulk invoice. Regardless of our financial position at any given time, we will take a deposit when it is offered.
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