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Construction Programs & Results Inc

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Downpayment on a construction job

by Michael Stone

Got a phone call recently from a contractor doing a job in the $150K range. Everything is fine, contract signed, and the job is going great.

Problem was he asked for his down payment (after the job started) and the owner said, "Well, ummm, the bank hasn't approved the loan yet."

I told him to shut that job down right away. Or sooner. The longer he works, the more money he has to lose if he isn't paid. He can explain to the owner the job will start again when the financing is approved and the down payment made.

Yes he has a contract, yes the people are happy. But tell me what happens if the bank calls the owner and tells them they only qualify for 65% of the contract price?

Don't start a job without a down payment AND the customer's financing completely approved. If you cut corners, it can cost you.

Comments

I agree wholeheartedly except for one comment. My attorney has commented more than once that a contract is NOT a contract until the money changes hands. Not the issuance if the check either, it must be cashed. (At least in Minnesota anyway.)

We work way too hard to be giving it away.

Robert Vandervelden (not verified) /

The best answer I would have is that I do not finance my customers work unless I had a finance agreement with them. A few years ago I had a friend tell me of a friend that was 25k into a remodle and when he showed up one monday morning, the gentleman had died over the weekend. Took him two years to get his money. Several weeks later I started a 25k remodle for a gentleman in not too good of health and with one lung. Invoices were submitted on thursdays with payment to be on friday. Good job and got all my money Bob

Marcel DesRochers (not verified) /

A very important reality a contractor must focus on in a construction project is how the money is going to move. A contractor can never forget that what he does for a living is a piece of business; as a contractor you are, first of all, there to perform a service for a price and not build a personal relationship with your client. There are rules in business that tend to be over-riden in an overly friendly relationship, like proper markup on a change order. The home owner could build expectations that you will provide him with changes at your cost, or he may get sloppy with the payment schedule, or he may take the liberty of asking your subs to do additional work for him.
As a contractor you must take the lead and dictate how the process will flow. You must know your business, and part of your business is to verify where the money is, how is will flow to you, and what happens if the cash flow is modified.

Doug (not verified) /

Down payment?

I guess since I'm in commercial construction, I don't understand this. I would never give a downpayment to someobdy working on my house.

 

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