What is the best way to pay contractors. Should it be based on milestones? Should I pay by check?
How much is an acceptable amount to pay up front, and how much should I hold until completion of the job?
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You should pay percentage,example=half the project is complete,pay half of the total cost agreed upon amount.
Do not pay in full until the project is completed.
This will vary greatly with type of project and scope. Large projects will typically have several payments spread throughout, while small projects will often have a down payment and final payment.
Milestones are the easiest ways to break up payments. Everyone can understand when framing is complete, but how do you determine with a project is 40% complete?
Amount of down payment will vary with size and scope. Kitchens are front-loaded, meaning payment for cabinets and often countertops must be made prior to their installation. The contractor shouldn’t need to finance a project, and it can be dangerous for you if they do. If one or two customers don’t pay, your project could be at risk if he goes under. Usually for projects over $5k, plan on a 10% down payment and 10% final payment with progress payments in between. Smaller projects should have 50% down, 50% completion. Design agreements will typically be separate.
If you’re scheduling a large project out a ways, the down payment should probably be less, around $1k-5k. These payments CAN be dictated/limited by state requirements.
This is something that varies greatly from contractor to contractor. I myself (being a contractor) would never pay anything up front without doing a lot of research on the hired party. Trust me, when I contractor thinks about taking a job, you better beleive they are researching that customer also. NEVER pay the full amount up front, that is just bad practice and I have seen many people get burned when doing that.
I have written contracts that require payments as progress is made. Usually in 25% intervals. Again, that all depends on the size of the job and the credibility of both parties. If I know a customer has a name for not paying, I will require 1/2 or more up front. Personally, I know that when I sign onto a job, it will get done. As a contractor, I want to make sure I will get paid for my work.
I have also written contracts that did not require any payments until the job was complete. Basically, it all comes down to whether or not the person you are doing business with is a credible person.
It will vary depending on the contractor, length and cost of the job. If it’s a large job they may bill you in phases while small jobs usually don’t require payment until job is complete. Most of the time it’s agreed upon before the job is started and put into the proposal.
by law in california a contractor can just charge a deposit of 10% or $1000.00 wichever is less and then if the project is big you can arrange progresive payments but never overpay the progress on the project and nevertheless dont pay in full before the project its done.about payment depends on you you can pay in cash and request a receipt or an invoice regardind the progresive payments or paid in full(depending the situation)or pay in check and you can keep a track on it,anyways you can have an envoice from the contractor.
Most contracts have a payment plan incorporated. Be leery of contractors that require a large upfront or start fee. The ideal payment method is a deposit upon contract agreement and the balance due at the end of the job but this is often not the case in larger projects.
As a contractor I ask for a 50% Deposit prior to the start of work. Final payment is due at completion of project within 48 hours or an extra 10% is added to bill. This system works well, most of my upfront cost are covered and the customer feels secure knowing that he retains half the money until we are completely done. Both my customers and i feel happy about the situation.
Fortin Construction offers complete turnkey services including the land. We believe that building a home should be as easy as buying a used one. For full details on Turnkey Construction visit fortinconstruction.com Building should be easy. If a contractor is good he will stand behind his work. Do not pay a contractor more up front than you would have to pay for a loan for the full amount. Do your homework on the contractor and see if he has a good reputation first. Milestones can get to be a hassle, it is difficult to judge what is fair. The best way to insure completion is to withhold the majority of pay until the project is comlete. A good contractor should be able to carry the project through the duration of construction. Plan on a downpayment to start and full payment upon completion.
You should only be paying progress payments. What that means is that as the work is being completed you should issue payements only for that amount completed. A lit of contractors try to “Front Load” a job which is they try yo receive most of their money upfront which will put an owner in a difficult situation if the work progresses slow or the contractor is a No Show.
It is important no matter the circumstance that you as a customer pay at the end of a job. That way if you are not satisified with the job than the job can be brought to your expectations. Also you will get the work you have desired and not have a contractor stiff you in any way. I am a contractor and I know that gives me more of an incentive to do the work if I know that I am waiting to get paid at the end of the project.
Read the Written Contract or Propsal that they gave you. You NEVER pay in full up front and NEVER give more than 1/2 up front. If the Proposal or Contract is asking for $ amounts that seem a litle out of sight or extremely too high, then trust your instincts. Most Reputable Cotractors will not ask for ALL up Front. And READ TO MAKE SURE that all Deposit\s are REFUNDABLE and how long that is good for…
ASAP…on invoice…strive for 30 day max
We usually require a 50-40-10 payment split. Half the money upfront, 40% half-way through, and remaining 10% at completion. Taking less money upfront or leaving more for the end puts the contractor at a huge risk.
First: Most of the building materials are purchased in the beginning, and you need capital to pay your crew. The 50% down payment insures you are not using your own money to fund the project.
Second: By the time you are done, the remaining balance is usually just your profit. If a customer decides not to pay, for whatever reason, you at least did not lose money on the job. You can take them to court and put a mechanic’s lean on the property, but it will take a long time and extended effort to see your money.
So from a contractor’s point of view, especially when working with a new client, this payment split insures that you do not take on all the financial risk. From the homeowner’s point of view, they get to keep half the money upfront, and pay most of it only when the project is getting completed to their expectations.
On smaller projects we accept 50-50. For clients we’ve worked with before, we may do 50-30-20. It is good business as long as the payment intervals keep covering your cost.