How to Identify Non-Paying Building Clients and Save Money

What do you do when your building client can't pay your bill!So your building client has run into financial difficulties and can't pay you for their renovation. You stand to lose thousands.

Even an improving construction environment does not compensate. Bad payers have more negative impact on a small building business than any local or national economic environment.Some builders have lost thousands because a client has not paid. And even if they when they do pay but late your cash flow is affected. You wish you had never met them!

Here's three ways to identify likely non-paying clients.

1. Clarify your client’s financial position

Most homeowners have no idea of the cost of a renovation. So, check that a proposed job fits within their budget before incurring any cost in designing or pricing.You may not be able to give a fixed price, but in most situations you can give a “ball park” figure.Listen carefully to their responses and don’t proceed until you are certain they can afford to pay.

2. Find out any borrowing conditions

It may be that a bank is lending the money or that a family member is funding the renovation.If a lender is involved it is likely to affect how and when you will be paid. So be clear about their conditions. Don't get caught because you can't meet an expectation you don't know about.

For example a bank may only pay on progress valuations and for goods only once installed on-site, not before they leave the factory. Or, you may have to wait for an inspection that could be delayed through no fault of yours.

3. Calculate profitable deposits

It costs money to prepare "free" estimates and quotes, to gear up for a new job, to purchase new equipment and to recruit/train staff.

Eventually these costs will be paid from profits, but many builders do not realise profit until after the final payment. If your deposit is too small you could be carrying start up and early costs for the duration of the job.So make a calculation of your pre-job costs, along with the building costs up to the first payment. Add to this your profit percentage to calculate your desired deposit (calculate instalments in a similar way). That way you can still make profit even if your client quits paying and you have to stop work.

Takeaway

The thing is, if your prospective building clients are not prepared to be up front about their financial situation, or are not prepared to meet your terms, you may be better to walk away having spent nothing. Go find a client who will pay.

Your Comments

I'd love to hear your comments.How do you approach talking about financial matters?What financial requirements do you place on prospective clients?How do you calculate deposits?Have you been burned by a non-paying client?Post your comments below.

Graeme

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ConvertGraeme OwenMay 25, 2014