This particular subject matter was brought up on the Certass forum earlier this week, and it sparked a wider debate about taking deposits and stage payments and what to do if you are dealing with a customer who is unwilling to place a deposit.
The principle of taking a deposit is certainly the industry norm, although I am aware of just one or two companies I follow on social media that do not take a deposit from a client when they sign up. But personally, a deposit is perhaps one of the most important interactions between a client and a company and for a number of different reasons.
Deposit = commitment
At our family run business we always take deposits when we sign up our clients. We ask for 25% and no more than that as that is maximum amount covered by the deposit protection that is offered as part of the insurance backed guarantee we give our clients.
That deposit is important for a number of reasons. Firstly it is additional cash flow on top of the remaining balances that are being paid as other jobs are being completed further down the pipeline. Second, it goes towards paying invoices from suppliers, especially the items that we have to pay up front for such as integral blinds, Spitfire doors and windows and doors from Origin.
But third, and perhaps as important if not more so than the first two, is that it commits the client to the company. Every installer should be getting a signature on a contract of sale, and that in itself is binding. However, as I am finding more and more these days, a signature means less these days for some reason, but cash tends to hold more significance to a client. So getting them to pay that deposit to the company emotionally and financially commits them and there is a lot less chance of the client becoming flaky or unsure as the weeks go on.
As I mentioned above, there are one or two installers that I know do not take a deposit. They operate on trust between the client and the company, and whilst that is a most noble position to take, the reality is that there are as many rogue clients as there are rogue businesses and the idea of ordering products for a homeowner that hasn’t put any money down yet makes me very uneasy. It only takes one or two bad customers to renege on their agreement and suddenly the installer is liable for thousands of pounds worth of goods from their own supplier with no chance of being paid by the client. Or, it doesn’t even have to be a bad client. It could be the case that the client finds themselves in a very unfortunate set of circumstances all of a sudden and are unable to carry on with their planned works. It is a cash flow killer.
To order or not to order?
What stood out for me in the comments of that thread in the Certass forum is that people would refuse to order any products without a deposit. That was reassuring to see, and what I would have suggested any installer to do if they had a client that was dragging their heels on not paying a deposit.
Alarm bells begin to ring for me when a client starts getting twitchy about paying anything before we have barely even begun. Thankfully, I have only ever come across a handful of customers that have been stubborn enough to say they are not going to pay anything. At that point I walk away and gladly let them be some other company’s problem.
As well as taking a deposit, on larger contracts we also take stage payments. For a lot of products we install we have to pay deposits to our own suppliers on ordering and then balances when they are delivered to us. It means we have a lot of cash outlay to suppliers before we have even got to site. So we arrange stage payments with our clients to cover those costs. Almost all of the time our clients are perfectly fine with that as we explain the reasons why and the supply chain process so there is transparency there.
However, you will get the odd client, perhaps only one or two per year, where they dig their heels in and refuse to operate by your terms. Indeed I came across this exact scenario on a job last year. It would have been my largest ever contract both personally and in the company’s history. I put months of work into it. There were endless changes and revisions, and it was made clear from the start that there would have to be stage payments throughout the contract due to the very large number of items that were going to need to be ordered with our suppliers that required being paid for up front. Then, as it came to signing the contract and paying the deposit, the stage payments suddenly became and issue the client began to push back, claiming stage payments were never mentioned. In the end I walked away from the client. Their game-playing in waiting out signing the contract and attempts to change our own terms and conditions just for their own project gave us serious red flags. We let the job go. As frustrating as it was, considering the amount of effort and time that was put into it, the chances were that the client was going to be incredibly slow in paying the deposit and would very likely have found numerous reasons not to pay us. That wasn’t something I was going to let us get into. As it happens, I know that they went to another installer who could supply similar products and have come to find out that they are being just as big a pain in the backside with them as they were with us, so it does look like a very large bullet was dodged there.
And this is why you do not order without some kind of financial commitment from the client. It is all too easy to wriggle backwards and become difficult when windows and doors are being installed when no money has been paid towards them. It puts the installer at great risk and it only takes a couple of bad clients to put a small installer in some very serious trouble.
A final note as well for installers, big or small, and I know it will sound insane to many, but please make sure all agreements are done on detailed contracts. Messages on WhatsApp or verbal agreements are no longer good enough to operate in this much more complicated business environment. Detailed contracts with proper breakdowns of products and agreed service protects both the company and the client from false expectations and disappointment, and prevents arguments when it comes to paying final balances.
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