Why Paying Contractors 50% Down Is an Awful Idea
In the gnarly world of contractors, it’s standard to ask homeowners to pay a 50% down payment on a job. Then they might want 25% more when they are halfway through the project (a “progress payment”), and the final 25% when the project is complete.
Think of all the reasons contractors are about as loved as IRS auditors and divorce attorneys. Many of those reasons stem from the “50% down” policy, in one way or another.
How and why they ask for 50% down
They’ll ask for half down and tell you it’s because they need to buy materials. The trouble is they don’t need to buy materials. They haven’t even started the stinkin’ job yet. In fact, most of your half down is just profit.
Take a 10K job, for example. Roughly 3K of that 10K is profit. You give Mr. Contractor 5K. He’s off to go spend that 5K. What, you think he’s going to put that money in a “special” bank account that’s earmarked just for your job? Not a chance. It goes to his Bud Light fund.
By the time your contractor starts your project, his Bud cans have been recycled into new Bud cans, and your 50% down payment has long since been spent. Now he has to start work on your job. Think he’ll be as excited as on Bud day?
Now you know why so many court cases involve a contractor that accepted a down payment but never actually showed up to perform work.
He doesn’t start off as a crook. Rather, he figures he’s now working for you at a loss. He’ll think, “When we finish this job I’ll have 7K in materials and labor and I’m only going to collect 5K.” Which, if you don’t take into account who actually paid for Bud day, is true.
But he won’t go above and beyond for you? Hell no. Some people only work hard before payday. He’ll charge you for every little thing you ask for. He’ll disappear on half days with lame excuses about his kids’ soccer practice. He’ll drag his feet and take forever to finish the job.
Think about contractors you hire for smaller jobs though – jobs where payment isn’t required until the job is finished. Think about HVAC guys or plumbers. That’s usually an OK experience. They tell you the day they’re going to be there, they show up, and they stay until they get the work done. Why? Because they want to get paid! They want to go home and feed their families. They don’t get paid in advance. They don’t get paid until your A/C or toilet is working again. They’re like the good kid who eats the vegetables first and the dessert later. Most landscapers and roofers and so forth inhale the brownie and scrape the spinach into the dog’s bowl when you’re not looking.
How we, Lakeshore Guys®, do it
We typically we don’t care how expensive your job is. Once we give you the quote and you say, “Let’s rock,” we ask for a $200 non-refundable reservation deposit. We probably wouldn’t even ask that if our dance card wasn’t as full as it is or if never had to drive far. But we need to know you’re serious and not just tire-kicking.
Once we get that deposit, we do not collect a single penny more until the job is 100% done and you agree that we exceeded your expectations.
When you say, “It’s amazing, guys, you guys are the best, and we couldn’t have asked for anything better…” then we’ll present the invoice and expect full payment.
This means that when we show up at your house we’re excited to get the job done – because if we don’t get it done, we don’t get paid! Not only are we excited to be on the job, but we’re also excited to stay on the job.
And if you ask for a little something extra, like an extra boulder on your shoreline, we often think, “Hey, no problem – we’ve got 3K in profits coming.” We don’t nickel-and-dime you.
We know enough about human nature and about ourselves to know that the reward should be the result of a job well done.
By the way, we also don’t charge our materials on credit.
That’s right: We don’t charge our materials. We pay for them.
When you deal with a contractor who charges for materials, you’re at risk of a lien on your home. Whenever you can avoid it, avoid it. Let’s say we’re riprapping your entire shoreline, and then went to our suppliers and ordered 24-tons of fieldstone riprap and a full roll of filter-fabric and put that on credit, there could be a nasty scene later. If you pay us but we don’t take some of that money and pay our suppliers, then our supplier may slap a lien on your house, because that’s where all their rock and fabric is. Then you end up paying twice: You pay the contractor, and you end up paying the material supplier to remove that lien. That’s awful, and it happens every single day.
We vowed never to put customers on the line like that. We pay for our materials in cash before we start your job, and we come do the job, and that’s that. Then when you pay us, we’re even happier because now we’re getting paid and we don’t have to go and write a check to the material supplier – because they already got their money.
We learned long ago that refusing to collect until you are done changes the entire business relationship.
Almost every time we finish a job our customers say, “You guys are the best contractors we’ve ever worked with.” Well, it’s because we’re excited to work those twelve hour days. It’s because we don’t wander off for 2, 3 days at a time. It’s because we’re there to go that extra mile. We charged a fair price with an adequate amount of profit and all we want to do is get out to your property, and stay on your property until the job is done. We want to exceed your expectations and join you in admiring our work, but we also want to get paid.
In fact, we only do one job at a time, which is an alien concept to other contractors. They’ll sometimes launch 5 jobs at once so they can get even more advances. Now, like politicians, they’re sitting on someone else’s money without having done any work. It’s a raw deal for the customer who has to wait, and wait, and wait while the contractor runs around like a drowning rat (best-case scenario) or just saunters over to pick up more Bud (more likely).
If you can find contractors in other industries who do what we do, hire them.