Buyer's Block

Know Thy Job
Tips for Guaranteeing Payment on a Job 

by Paul Bieber

You sharpened your pencil on the quote, you worked hard on the job and now, 90 days later, you are kicking yourself in the tail because you’re not being paid. You have to protect yourself and your company with proper procedures in your customer account set-up especially in these economic times.

Know Your Customer
For starters, make sure your customer fills out a proper customer application, including: full legal name, address, owner’s name(s), home addresses and phones, cell numbers, e-mail addresses, three business references, a banking reference, tax ID number and, if you can, a personal guaranty for all purchases. Use any customer application you have filled out for your vendors as a template. If a customer is COD, you still need all of this information. How many times have you done the preparation work and ordered material, only to get to the jobsite and no check is waiting? Don’t assume a “big company” is a safe credit risk. Is anyone owed money by GM?

Contact the references, asking how your new customer has paid them in the past. Make sure the references are valid. If the customer is a million-dollar contractor and gives you three small hardware stores as references, that is a red flag. You want vendors that are important to your customer, those that do at least as much business per month as you anticipate doing with your customer.

You may need a release signed by the customer to have bank information released to you. Ask your bank to give you the form they require, and copy this into your letterhead, saving the lawyer’s bill to prepare a form. Ask the bank if the customer has written any insufficient checks in the last year, if they are a borrowing customer and, if so, to what percentage of their capacity have they borrowed (if they are maxed-out on their borrowing capabilities, this is a red flag) and how are they paying back the bank?

"You are entitled to evaluate your risks before granting credit. 
If your customer, at any level, doesn’t want to share this information, 
that alone should be the red  flag that waves you off the job."

Know Your Job
You know the location and the general contractor. Do you know the owner of the property? Do you have the address and contact for the owner? If you are renovating a retail store in a mall, do you have the mall’s information? No mall owner wants a lien and will help you if you have a slow-paying customer. If you are a fabricator, you need this information as well. Some fabricators insist on knowing the job location and owner information on all orders over a certain dollar level. 

You are asking yourself why you should have this information. Simple … you are granting credit for some or all of the value of the job. You are entitled to evaluate your risks before granting credit. If your customer, at any level, doesn’t want to share this information, that alone should be the red flag that waves you off the job.

Should you risk losing the quote by asking for a deposit? Yes. There is nothing wrong with asking for a deposit. Owners will pay for materials, but generally not for labor or overhead on your part. Be prepared to offer a prepayment discount on the value of the deposit, say two or three percent. If your fabricator wants prepayment for glass or metal, demand the same discount. If you don’t get it, shop for a new fabricator.

If none of these options surface, consider working on a joint-pay. Ten years ago, joint pays were considered a sign of weakness. Today, it is a sign of a sharp business person, one who knows how to control and work with risk. Joint pays take many forms; most general contractors and owners have a standard form, as do most fabricators. You’ll want the joint pay amount to be as large as possible, covering your labor where you can. Avoid the “pay-when-paid” clause at all costs. Set progress payments and then a firm date, such as 60 days after substantial completion, for your final payment, less retainage.

In the next issue we will discuss proven collection techniques if your account goes into a past-due status. 

Paul Bieber has 30 years in the glass industry, including nine years with C.R. Laurence Co. Inc., and 21 years as the executive vice president of Floral Glass in Hauppauge, N.Y., from which he retired in 2005. Mr. Bieber’s opinions are solely his own and do not necessarily reflect the views of this magazine.

USG
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