Larry Parrish has heard all the excuses for late payments —from “I've been out of town” to “I thought my wife took care of it.” Although most clients handle payments responsibly, too many times, the check isn't in the mail.
“We've been burned in the past,” says Parrish, president of Parrish Construction Co. in Boulder, Colo. “Now we've tightened our procedures.” Contracts no longer stipulate that work will go on while unpaid bills are resolved. Instead, notice is given that after a certain number of days, work will stop until money due is received. The company changed its billing cycle from once to twice per month and shortened the window for payment from 10 days to five.
Finally, the company now requires a substantial initial payment. The money is held until the job is completed and is then applied to the final payment.
At Minneapolis-based Orfield Remodeling, production manager Bob Kalseim says the company has found that using a system of “progress payments” ensures prompt payment and helps build a good relationship with clients. “We make our process clear in the preconstruction phase,” Kalseim says. “The customer knows what's coming. There are no shocks along the way.”
There's no down payment, but a first payment of approximately 20% is due the day the project starts. Subsequent payments of 15% to 20% are tied to the start of each stage of the project: mechanical, trim, etc. Kalseim says linking payments to the beginning, rather than the completion, of a phase has become “accepted wisdom.” Homeowners can clearly see when an activity gets under way, but defining when it's wrapped up can be more difficult.
The last payment (about 5%) is due after any remaining items noted in the final walk-through are taken care of. According to Kalseim: “Ninety-nine percent of the time everything goes smoothly. There's usually a pretty good reason if a payment's not on time, and we always work it out.”
Judith P. Knuth is a freelance writer in Milwaukee, Wis.