Last week, we held a webinar on prepping for taxes. One topic Karen Mitchell (OnlineAccounting.com) covered was how to handle bad debts.
A question came in from a contractor. They had a change on a job and now the owner thought the charge for the change work order was too high and they weren’t going to pay. Would that be considered a bad debt?
Let’s back up here. Why was the change made before the Change Work Order was signed and paid for? We’ve talked about this elsewhere on our blog, in our newsletter, and in both our books, Markup and Profit; A Contractor’s Guide and Profitable Sales, A Contractor’s Guide.
Additional work orders are estimated, written up, signed by the owner, paid upfront and THEN the work is done. If they don’t like the price, don’t make the change! That is not so hard and it is the way smart contractors do business. Yet, contractors continue to do changes, ask to be paid and then are aghast that the owner won’t pay for the change. Go figure.