Getting Paid on Time (Part One)

It’s nerve-wracking to work on a job with new clients and not know whether they will pay you when your work is complete. So how can you make sure you get paid?

Most builders get a deposit first. Deposits tend to vary between 25 percent and 50 percent of estimated project costs, and help cover startup and material costs upfront. When Matt Johnson, a project manager at Columbia Construction Company in North Reading, Mass., owned and operated a home remodeling company, he required deposits. “I required a minimum 30 percent deposit for any project in order to secure a spot in my schedule and begin material procurement,” he says. “If the job had special order items, the deposit for materials could be as high as 50 percent.”

Next establish a clear payment schedule with the client for the rest of the job, detailing how much money the job is going to cost and when payments are due. “This is typically tied to completing milestone schedule objectives and is very helpful in avoiding the typical contractor request to the owner for money every week,” Johnson says.

For smaller jobs that are going to run a week or less, a formal payment schedule might not be needed, but you still might stagger payments. “I like to settle up every three days,” says Joe Kaplan, a Chicago-based builder/remodeler. “That way, they’re not writing a huge check at the end; there are no surprises.”

You also can remind the homeowner that it’s remittance time so they are prepared. “Call the day before payment is due to ensure that it will be available to pick up,” says Fergus Murphy, a carpenter and framer in New York. Murphy also suggests running background checks or credit checks on larger jobs, especially if they are new clients.

Kaplan has also found that billing by labor and materials in lieu of doing a flat-rate bid allows for adequate compensation for his work. “I find bidding to be extremely difficult,” he says. “I just do labor and materials. That way allows me some flexibility in what it may cost and eliminates me having to bid a job to the penny.”

Still you can’t trump your gut instinct when determining if a client is reliable. “There’s a fair amount of trust involved on both parties,” Kaplan says. “You have to use your instinct and know if this is someone you want to go into business with.”

“You know that first feeling you get when you walk in the door and you meet this person; you know within three minutes,” he says. “The couple of times I’ve broken it, it’s been disastrous.”

For Kaplan, that means no bidding jobs over the phone. “Many times people will call up and want to describe something to you, ‘How much would you charge?’ and you just can’t do that,” he says. “I might lose some business that way sometimes, but I just need to see it.”