We all wish that we could tell our customers, “Screw you! I did the work. Pay me!” I know that in my career I have gotten just about every excuse in the book as to why I wasn’t getting paid for my work. By its very nature, the decorative concrete industry that we love so much allows customers to play with our money. Whether it is general contractors, the customers they represent or homeowners, the result is the same. We hear excuses like “It just doesn’t look exactly like I thought it would” or “I have to wait on (fill in the blank with any person involved in the construction process) to approve it before I can turn loose your money” or my personal favorite, “I haven’t been paid by my customer yet and then I have 10 business days to pay you.”
Why is it, do you think, no one realizes that we as subcontractors essentially offer an interest-free loan against our labor and materials and that we need to get paid to keep our business going?
Our suppliers do not like to hear, “Well, I know I owe you a lot of money and I know that you have been waiting for more than 60 days for my payment, but my customer hasn’t paid me yet. When they do, I want to hold that money for a few weeks, and THEN I can pay you.” That method of business would mean that we would be looking for a new supplier very quickly, right? Our employees can’t wait either, so as an industry we scratch and borrow and do anything that we can to cover the bill for a few more days. We hope that our customers decide to pay us for the work. As a very wise friend and partner reminds me all the time, hope is not a strategy.
So, how do we keep from getting strung out forever waiting on our customers to feel like paying us? Well, while I do not know the absolute perfect solution, I can tell you a few tricks that will move things along.
First, plan for your work. Be extremely proactive in the way that you write contracts and in reviewing the contracts that others provide you. Ask to see a copy of the contract between the general contractor and the customer. It is available for your review.
Do not take any payment terms that the general contractor won’t take. As an example of a payment term, consider retainage. Standard contract agreements are usually written to allow the owner to withhold (retain) the final payment to the general contractor as “retainage” to ensure that the project punch list items and touch-ups are completed in the end.
A standard contract starts out with 10 percent retainage, but many G.C. contracts allow less. I always argue for 5 percent retainage. Most of the time I do not have a problem negotiating the contracted retainage down to 5 percent. In any case, the idea that a customer can hold that retainage up to a year after the date of substantial completion drives me crazy. This happens a lot on schools, universities or any projects that are funded with tax dollars, but it is not uncommon for clients to hold retainage that long on private projects as well.
Another planning technique is to prebill for materials. While this requires a little bit more planning, because you may need to buy all of your diamonds, color or densifier early, it also frees up a lot of your money from the contract. By having this material delivered to the site ahead of time, you can get all the money for your suppliers sometimes months before you ever set foot onto a project. You add your 15 percent markup to that and you also have a little bit of your overhead or labor cash before you have started the project.
Find out before you sign the contract who the decision makers are for the project. If you are working for board approval (extremely difficult) then write it into your contract that only one board member gets to approve your process. Make sure that the decision maker is there when you do your sample and that you notify them (in writing) of any and all issues as the project goes along. Write into your contract that the decision makers must be available to show up on site for reviews as long as you give them 72 hours notice, and bring them out for approval, too, as you are finishing your project. This takes all misunderstandings out of the picture and limits the ability of any party to paint you in an unfavorable light.
You need to have the mentality that you can and are the one in control of your work and that you will be paid for it. You can put your customer in a bad spot at any time by letting them know that you are pulling off or not showing back up until they are current. Explain that it is your company policy not to work on projects that are more than 30 days late on payment. They will scream and yell, so be prepared for it, but if they owe you the money and they know that you won’t be intimidated, then you will be amazed at what kind of miracles customers can make happen.
Another friend of mine is a mason. He had a very large, very profitable company that was severely affected by the economy and by customers stringing him out. He has recovered and is very busy again. I didn’t believe it when he told me that he requires that he get paid every other week on all of his labor and once a month (no matter what) on his material. As a good contractor he gets these contracts. He might be lowering his price a little bit in order to make it look good to his customers (by a little bit I mean like 5 percent) but look how much he is saving in bank interest, headaches and late charges from his suppliers.
The decorative concrete industry as a whole is subject to the opinions of our customers. This leaves room for us to be taken advantage of on a regular basis. Make your scope of work extremely clear and explain that you are doing a process. You cannot guarantee the outcome of that process because there are a lot of outside factors that are beyond your control. Make your contracts clean and extremely clear regarding the payment terms that you are willing to accept.
Remember that you have the power. This is your work to sell. An artist does not sell his portrait after the customer sees it. He gets at least half his money up front. While you can’t do that, do not be afraid to call your customer’s bluff in order to get paid. Don’t be afraid to get a little angry. After all, this is your family’s shelter, the food for your employees and the livelihood of your suppliers that they are playing with.
David Stephenson is president of Cave Springs, Ark.-based Polished Concrete Consultants. He can be reached at [email protected]