Pre-paying on buildings and such!!!!!

[JD Seller]

Rusted has a post below about how he pre-paid on a canvas hoop shelter and now can't get it delivered or even a reply. It seems like there are more and more companies that are trying to get the CONSUMER to finance the company's operations. I refuse to pre-pay on some thing like this. I have several Morton building and they tried to get me to do this. I said no way no how. I will pay on delivery and or completion but not pre pay. I gave them a letter of credit from my bank that PROVED I could make payment as required and they built my buildings.

There are a bunch of people around here locally that are hurting on this prepay deal. There was a fellow that made/rolled sheet steel for buildings. He started having guys pay a percentage down with the order. Like 50%. I know of several people that paid over $10K to him. He is bankrupt. They will get NOTHING as the first secured banks will not even be covered.

So my questions is: Why in the world would you pay for something before it is even made???? I know companies will tell you they NEED to be sure you will take the order. I could see that if it is really some thing odd but a pole barn or a hoop building is not an odd thing. If you do not buy it then they can sell it to some one else. I think it is more of a financing scheme. Your fronting/loaning the money to the company to BUY the materials for them to MAKE your product out of. That really seems very risky to me. Your turning yourself into an unsecured creditor for the manufacturer. Am I one of the few that sees this as BAD business in general????

 

[Dean]

It's great business if you can get buyers to do it.

Dean

 

[markct]

I agree to some degree, but the flip side is I know many builders, welders, mechanics etc, myself included, who have done a job and then the customer doesn't pay up right away or at all. It's a difficult balance

 

[john in la]

A letter of credit says you have the funds to pay the bill
It does not say you will pay the bill.

I can see both sides.
You give me a deposit and I spend it on other things and close up shop.
But then again I take a order; build what you want; and with nothing to lose you change your mind and cancel the order.
Yes I may be able to sell your building to someone else but how many months do I have to sit on it with my money tied up trying to find another buyer.
Heck I may even sell it at a loss just to get rid of it in a timely matter.

 

[Bob Bancroft]

I may have done that once, on a Quonset style steel building. I don't remember! But it obviously worked out alright, because I'd certainly remember if it didn't.

People around here I know have been bit by dishonest contractors. I say any decent contractor should have enough credit that he should be able to buy materials for the job, and then get paid monthly, weekly, whatever the agreement is. I guess it boils down to contractors knowing their customers, and vice versa.

 

[Janicholson]

Setting up an escrow account is a solid method for solving this dilemma. A third party or institution holsds funds and pays on a schedule, or as completion occurs. Jim

 

[Greg K]

Its so bad that they even want a person to prepay for a casket around here! All joking aside it would really depend who you do business with. A good friend of mine used to do carpentry work and for new customers insisted on 50℅ up front. I personally don't bill until either I am finished or in the case of a new house I will bill 60℅ after rough in, 30℅ after switches and outlets are installed and 10℅ when the job is complete. That way no one gets hurt too bad, I have cash flow, and the customer has a bargaining chip at the end in case they would be unhappy(doesn't happen much).

 

[Paul from MI]

I just finished having the house re-roofed and re-sided. The contractor has known me for some time, and I'm sure he knows my reputation as I know his reputation. He wanted no down payments, no progress payments, even though I offered. He did a great job and got it done on time. He came by with a bill the day after he finished and I wrote him a check in 15 minutes. Sure would be good if everyone was that honest.

 

[Sprint 6]

I run my own one man auto repair shop. I have been in business 5 years. I don't require money down unless it is a big ticket special order part like engines or transmissions. That way, atleast the part is covered if something goes south. I also do not have the money to front a couple grand on an engine. I have not had any complaints yet.

 

[Bryan inIowa]

Anymore on jobs over $1000 in my shop I ask for 1/2 up front . Everyone is ok with that .

 

[TXZane]

A few years ago I was a pole barn salesman at a small lumberyard. Anytime I had a sale I had to write up a contract and I had to get 25% down. If we didn't get the money down nobody would commit. I special ordered several items for people at the lumber yard (like doors and windows) and if I didn't get a down payment on them and I didn't know the customer they NEVER showed back up to pick up their items. They left us high and dry with items that we most of the time had to give away because we needed the room in the warehouse. The same is true with selling buildings. As soon as I got the contract signed with a down payment I ordered all the metal and special order items. The down payment a lot of times wouldn't cover the cost of special order items. However, with that much money down we never had anybody back out and I never had any unhappy customers.

 

[Spook]

(quoted from post at 17:52:10 08/19/15) Rusted has a post below about how he pre-paid on a canvas hoop shelter and now can't get it delivered or even a reply. It seems like there are more and more companies that are trying to get the CONSUMER to finance the company's operations. I refuse to pre-pay on some thing like this. I have several Morton building and they tried to get me to do this. I said no way no how. I will pay on delivery and or completion but not pre pay. I gave them a letter of credit from my bank that PROVED I could make payment as required and they built my buildings.

There are a bunch of people around here locally that are hurting on this prepay deal. There was a fellow that made/rolled sheet steel for buildings. He started having guys pay a percentage down with the order. Like 50%. I know of several people that paid over $10K to him. He is bankrupt. They will get NOTHING as the first secured banks will not even be covered.

So my questions is: Why in the world would you pay for something before it is even made???? I know companies will tell you they NEED to be sure you will take the order. I could see that if it is really some thing odd but a pole barn or a hoop building is not an odd thing. If you do not buy it then they can sell it to some one else. I think it is more of a financing scheme. Your fronting/loaning the money to the company to BUY the materials for them to MAKE your product out of. That really seems very risky to me. Your turning yourself into an unsecured creditor for the manufacturer. Am I one of the few that sees this as BAD business in general????

I think in the case of contractors, they need to get a partial down payment, especially from someone they don't know well. A friend of mine has a auto repair shop, and he usually has a couple of cars there that the owner cannot afford to fix. Sometimes, they still owe on the car. He has had folks not pay him a few times. Tough on a small biz. With me, I just tell him to fix it, he does it, I pay him. But I've been his customer for 20 years.

 

[SparepartsTN]

I've hit both sides of that recently.

When I was awarded disability, two years back payments, I went looking for a roofer since my leaking asphalt shingle roof was 35 years old. Got as many quotes as I could and settled on the one that seemed the best. When I told him he had the job, he said ok and his crew started the next week. complete tear off, repair unseen problems and new roof. When the job was done he came to the house to ask if I was satisfied then collected his money, $5000., the exact quote, nothing added for the extra repairs he found, nothing up front. He was the "middle" bidder.

People down the road insisted on hiring me to repair their badly neglected, washed out dirt drive, about 250+ yds long. I told them that they would be better off with construction equip, they insisted on my tractor and blades. They asked me what the bill was about a third of the way through and paid that. When the job was done and they were real happy with the result, there was no more money offered. Sent them two bills about six months apart, no payment, not even an excuse, but they act like we are best friends when met on the road.

 

[Hoenes]

John, here is a horror story on prepay. About 25 years ago, in the St. Louis area, a building group called Lieberman Brothers kept everyone's down payment on new homes and earnest money, and skipped the country to Chile. (To the tune of 25 million) One brother was caught, the other killed himself. (Supposedly jumped from a high rise in Santiago) Only 3 million was recovered. I know of one dirt contractor that was left holding the bag on 5 million.

 

[M-MAN]

Friend of mine hired a contractor to build him a new shop building about 12 years ago. He paid him the entire bill up front. The contractor poured the concrete slab and put up three walls which blew down in a storm. Contractor said he had another small job and he would be back. He hasn't shown up yet. Bad thing was the contractor was a cousin of his.

 

[Greg1959]

Interesting...could they thought they had paid you in full when 1/3 through the restoration?

 

[ASEguy]

I think requiring a reasonable down payment is prudent to show good faith, but not prepaying for everything.

 

[coonie minnie]

A couple of examples: I'm in the process of restoring a farm house we recently bought. We've purchased a lot of materials at the local big box store, like windows, cabinets, etc. I've had to prepay all of those. Delivery comes weeks later. So far so good, but I don't like it.

On items like sheds etc, our township (I'm a supervisor) requires the contractor to post a performance bond if they require significant prepayment. The bond dictates work schedule, and secures down payment capital in case of default.

 

[showcrop]

An electrical contractor friend once had a lot of material for a big commercial building delivered to the site. A few days later the gate was locked, GC went under, bank sold all the material at auction and my friend still had to pay the supply house in order to be able to get material for other jobs.

 

[RodinNS]

I agree to an extent that they want to get enough out of you up front to cover the material cost.... but look at it from their end too... a LOT of people do change their minds and turn and walk away from a deal today. Their word means nothing. Then as a manufacturer you're left sitting there with someone else's convoluted building plan half ready to go and have to rejig it to sell to someone else or else discount it to get it out of your way. I tend to think that this is a fairly low margin business to begin with, particularly so when you look at their sales tactics and how they do business... So I don't really have a big issue with a deposit if I was dealing with a reputable company. If I was dealing with some of these other fly by night outfits that I see advertising on Kijiji regularly... then I'd be more inclined to pay on delivery....

Rod

 

[Billy NY]

It is bad business and one of the reasons is contractors that run off with your money.

In commercial construction, the standard is AIA (american institute of architects) percentage of completion method, AIA payment requisitions have been an industry standard for years and for a reason.

Materials must be delivered on site, and be 100% acceptable prior to payment. I could never represent an owner and recommend payment up front for materials until they are received, inspected and quantities checked. Even in the smaller industries, if they are setting a precedent for forward, or up front payment, it sets a bad example, to me its unacceptable.

On the contracting side, if the contractor cannot maintain a line of credit with his suppliers, or is not financially sound, I do not want them on my job, and I most certainly under no circumstances will pay them for any work or materials up front, nor would I ever recommend an owner to do so! Sure, there are situations where its done, but its bad practice, it has risk and when you represent an owner, part of that representation is to minimize risk. How many customers have been taken by contractors that took the money and ran, or they did a terrible job, no contract, no other leverage or means for the customer to recover??? Its bad practice from start to finish, never pay up front until you have something tangible done, material delivery or acceptable work in place.

Percentage of completion method of payment, using monthly or progress payment requisitions also must have retainage, usually 10% or potentially more is deducted from each progress payment and withheld until the job is 100% complete, all punch list work done and all other work complete and ACCEPTABLE. At such time the retainage will be released and only under those circumstances. Some jobs its held one year, during initial warranty, it gives the owner strong leverage on large jobs, because its a significant amount, much of it profit, so if there is a problem, the owner has leverage use on a non performing contractor. I've been on both sides of this and know it inside and out.

Scale it down to farm buildings, receive the materials, even if you bought it erected, as long as the materials are ALL acceptable, full payment can be released for that, though I would still hold 10% until the job is done, to insure they are handled carefully and have something in case of damage. As the job progresses, and these are much shorter in duration, I would release progressive payments upon acceptance of the work until completion, no different than a large commercial job. The owners best interest is being protected by doing this.

A contractor that is paid up front is not motivated like one that knows they must perform to receive payment. A contractor that knows there is retainage withheld knows they must do acceptable work to get paid. The simple philosophy is to get the work, perform the work, have it accepted, finish the job, get paid and move onto the next one.

Some may balk at this, well we do it this way or that, but the bottom line is that its bad practice for a customer or owner to have to pay up front. A customer has a finite budget, they are at risk until that building is complete, so if a contractor has their money, blows a hole in the labor budget or has some problems with their supplier, etc. etc. the owner takes all the risk. As a contractor, I know I have a finite amount of labor hours contained within the bid, I have to get a certain amount of work done in a specified time, if I go over that, I lose money on the job. That same contractor will know they need to perform their work, and have it accepted to get paid. They should be motivated to do the job correctly within the specified time.

 

[John T]

I would consider to pay perhaps 1/2 once the materials were delivered onto my property and the balance due when construction was completed to my satisfaction, along with a sales contract that specified the materials were paid for free and clear with a hold harmless clause regarding mechanics or material liens.

Not a problem if the seller doesn't accept my offer, FIND A NEW BUILDER WHO WILL or buy the materials myself and hire someone to perform construction.

The customer and the one with the money is in charge here NOT Billy Bob and Bubba Construction Co.

"A fool and his money are soon parted"

John T Country Lawyer

 

[JMS/.MN]

My renter used to have 3 custom cabinet shops. His standard was half down when placing the order, half upon installation. Half down might be stiff, but imagine trying to sell a custom cabinet system for another house....he needed commitment.

 

[Bill(Wis)]

I ordered my last Morton machine shed in Feb of 2008 during their annual sale. I paid one half the total price at sign up plus gave them the letter from the bank which stated that I had adequate funds on deposit to make the full payment. After the building was complete, in July, the Morton rep came out and went over the complete building with me and when I was satisfied I gave him the remainder due. I didn't see anything unfair about this because they are, after all, putting up a building on my property. It looked to me as though I had paid for the parts up front and the labor after the fact. They delivered the building exactly as they said they would and the erection crew could not have done a better job. They apologized to me one day for being late because they had to attend a safety class that morning. Fine with me. They all wore their safety equipment, hardhats, monkey harnesses, telehandlers had beeping horns and flashing lights and what I liked most about it was I never saw so many young women come by my place running, walking, biking, etc. just to get a look at those young suntanned guys in shorts and boots climbing like monkeys. Pretty funny. (;>))

 

[01gentdc]

My son is now running the home improvement business I started in 1975.AND DOING QUITE WELL ,as I did ,...there are 2 sides to everything ,, most the time I simply had a signed contract ,, and let people out if they decided to go with someone else ,,. no problem ,, ALWAYS had more than I could do or train others to do ,,. in the beginning , I mostly worked for farm families on old farm houses siding and trim , insulation , windows , gutters ,, if someone was not in a hurry , I gave them a hundred bux off when I completed the work , especially if they were on the books for 6 monthes waiting ,,had a roof job that waited for 2 yrs ,,,good people ,,storm damage ,,, I made the repair and told them to get someone else ,,they waited for me ,, ,,. anyway ,ABOUT MONEY PAID DOWN ,,. when special ordering windows , I always got half down for the window package ,, like cabinets ,, you cant resell them at your full price,if anyone backs out ,,. speaking of backing out ,,With society as goofy as it has become ,,, I cannot blame the hoop building people for wanting a third or more down ,, for something that will be delivered 2-6 monthes later ,. BeLIEVE ME ,, I have seen the damdest things stupid livestock people will do , that will have you the contractor in a hale of a tailspin trying figure out what to do now ,, death is one thing that is excuseable ,so is being called up in the reserves , and those always turned out well ,I Had It ALL !!,. getting tossed in jail ,divorce , burning their own house !!! ,, I tell you some people are plum nutz ,,.. depending on the situation , , I usually required 10 percent on signing , that lokt people in , to keep them from shopping anymore for a better deal , if I did not mind the job slipping away , during intense times , I never mentioned it ,, even though it was printed in my contract ..you knew you had good people when a chek arrived a few days later xplaining they read here they needed to put 10 % down ,....All in All It was a good business .. BUt ... glad to be done with all that ,,. it is a young mans business ,..that can make you old if you CARE...btw ,,ALSO , having to play thew role of daddie to some of the help runs a fella ragged looking for kingsize HUGGIES ..back in the 70s everyone you hired was responsible , sober,cival and Christian family taught and well raised and capable ,, by the mid nineties , when it evolved to where 80 % of my work was new construction easy work , finding help like that was the exception to the rule.. some of these KIDS were in their 50s , and I would not keep them a week . the only thang they were good at was talkin a line !. deer gawd!!!

 

[1948CaseVAI]

(quoted from post at 21:13:43 08/19/15) A letter of credit says you have the funds to pay the bill
It does not say you will pay the bill.

I can see both sides.

That is the real purpose of your credit rating. Your credit rating is not simply whether or not you CAN pay, to a larger extent it indicates whether or not you WILL pay.

There are not really two side to this at all - if the vendor is not capitalized to the extent that he can stand a few slow-pay customers then he needs to get the heck out of the business. No patience whatsoever with small vendors trying to scrape by on a shoestring - they need to shut down and get a job for a living.

 

[JBDyer]

It works both ways. I run a small cabinet shop. If I trust the customer and have a good history with them I will not get a deposit. If I don't know them then I will get 1/3 downpayment. I learned this the hard way and have been stiffed twice in my business once by the local high school principle and once by a big city lawyer. The little man that looks like he ain't got a dime is usually my best customer and goes out of his way to pay me. Johnny

 

[JOCCO]

JD some of this is an advance fee scam!!! Others are legit, escrow is a good thing, I have seen to many go wrongs. Like an old tractor engine rebuild costing thousands then the customer changes his mind shop is stuck with an item not worth what they got in it. In my state buildings go with property (except some mobile homes) Go try to take a Morton building off a property!!! Kind of a balancing act.

 

[Sparktrician]

Well.....As a electrical contractor.....on unknown customers, I want some money up front. I typically get materials money up front, or set up a job account at the supply house (gets me free use of big lawyers if customer doesn't pay) a lot of work requires special order / non stock items. Most farmers have no issues with materials up front, and I have a damn good reputation, and good references. When buying or hiring a contractor, I expect the same! If I don't trust him.....I don't hire them, and I rarely hire the least expensive bid, or know better

 

[SparepartsTN]

No, they understood that they were just paying an installment for the work completed up to that point. Also, two detailed bills sent after the job was done should make it obvious.

 

[kyhayman]

I can argue it both ways. As a customer, you bet, I want them to front all the money until the job is completed. As a contractor, I want materials down, in advance, less my markup (40%). The reason being, just this year, I ordered $9000 worth of seed to re seed a farm for a lady. Seed came in, and when I told her we were ready to plant she said she had changed her mind. Non returnable. Got another client that owes me 6 figures and another that just got her bill from 5 figures to 4. In both cases I fronted the entire bill with the understanding of payment in full when completed. Both of them had 'stuff happen' and are now making monthly payments but my money is tied up for years...