Payment terms for larger jobs

[red_slr]

My company mainly supplies goods.
Customer wants goods, they order, they pay, we deliver. Fairly simple.

However, about 5% of our work is supply and install.

In these cases we quote for work - goods and installation in one - and ask for small deposit.
We then ask the customer to pay the balance within a couple of days of completion.
Work generally takes a day, perhaps 2 in some cases.
All works well, generally customers are domestic and prompt in payment.

However, we have been asked to carry out a larger job (for us). It will involve us spending much more on labour, machinery etc than we have in the past.
Work will last a few months. Customer is a multi national.

What kind of payment terms should I be looking at?

Thoughts from those who do this kind of work?

[ringram]

Id get payment for goods up front, then deliver them.

Job done on goods transaction.

Then for your labour etc, agree invoicing terms based on a phased sign off.
So break the implementation into phases, perhaps by product or function etc.

Get the customer to verify and sign off each phase and invoice accordingly.

Final payment on final sign off.

You may want to let the client keep 20% up his sleeve for final sign off.
This is what we always do and it works fine. Also caps exposure to the current phase and not any prior signed off phases etc.

Just agree payment terms, phases and sign off criteria up front BEFORE you start in writing

[User33678888]

Ask for 100% upfront. Nothing ventured - nothing gained...


Otherwise, you split it into 3-5 payments. I find four equal ones works best as people are strange beings and would much prefer to pay a 25% deposit than 33.3334%.
Then just try to schedule it so you've been paid in full by the estimated finish date.

[leemanning]

If you have an account (or know somebody that does) look on Riskdisk as that will give you some information about how good they are at paying their bills. Not the final word in accuracy, but I would say that the majority of our customers who are bad payers have already been flagged to us by Riskdisk. Then after looking at this, decide your terms accordingly

[red_slr]

Thanks - I am more thinking whats the "norm" for large companies when they pay for work that lasts say 8 weeks?

I cant hold the invoice till the end of the job and then wait 30 days for example..

If I invoiced 25% on the day we started on 30 days, issued another after we got to half way through the job on 30 days for another 25% and then final 50% on completion on 30 days do we think that's acceptable?

[mike9009]

I work for a medium sized company. We usually have 30 days with most suppliers whether big or small. There are a couple of exceptions where we do pay in advance for materials.

As someone else said chance your arm with 100% up front, and then negotiate from there. If they are a big company it might be non-negotiable - have you plenty of cash in the business to cover the contract?

[Mr Pointy]

red_slr said:

Thanks - I am more thinking whats the "norm" for large companies when they pay for work that lasts say 8 weeks?

I cant hold the invoice till the end of the job and then wait 30 days for example..

If I invoiced 25% on the day we started on 30 days, issued another after we got to half way through the job on 30 days for another 25% and then final 50% on completion on 30 days do we think that's acceptable?

There is no norm. Some will pay instalments on 30 days, some will want 60 or 90 days & some will want a percentage of the contract value back at the end.

Maybe you should look at being cash-flow neutral until the end of the project. Work out your materials & equipment costs & try & get at least that amount covered by an initial invoice on contract signature. Then maybe propose the rest of the contract value is split into monthly payments (however many months it is).

Avoid tying stage payments to measured results if you can as this can lead to cash flow issues if the project slips. You will still have outgoings but no money coming in.

[davepoth]

In my experience, the bigger the company, the worse they are, especially for one-off jobs. Get as much upfront as you can, and staged payments for the rest. That way you'll never be a long way behind.

[red_slr]

OK thanks guys. I am going 50% at the start and 50% at the end on 30 days.

[897sma]

For large jobs lasting less than a couple of weeks we usually charge 20% deposit with order + 40% prior to commencement (usually 7 days before but at worst case when we arrive on site to start) then the balance due 30 days from commencing, not completion. On larger jobs we ask for the same deposit terms but spread the remainder over the contract duration in monthly payments. If we feel the client is likely to want to make a 5% retention we add this to the bill so we aren't out of pocket. I'm not in the money lending business and we don't do buy now pay later or interest free instalments. Set out your payment terms clearly at the beginning and stick to them or most companies, especially larger ones, try and take the piss.

Edited by 897sma on Thursday 11th December 11:40

[johnfm]

Your 50% up front and 50% 28 days after completion - how does that hit your cash flow?

How much of the total contract value is is parts? How much is labour?

What provisions have you put in place for acceptance and testing?

How long are you warranting the installation for? Supply only and 'supply and fit' are different beasts. Who has designed the installation? You or them?

[Grandad Gaz]

I think you'll find most larger companies will be reluctant to pay out anything up front.

[Djtemeka]

I'm a sole trader handyman so most of my work is small jobs going up to bathroom refurbs and kitchen refurbs.
Those take a little over a week and the outlay is too much for me so I usually ask for half upfront and half at the end. If the client is a bit afraid of handing over half in case I run off then I usually ask for half once half the job is done and the remainder at the end.

[AyBee]

Grandad Gaz said:

I think you'll find most larger companies will be reluctant to pay out anything up front.

Except 50% upfront on 30 days isn't really upfront

[Frixturbo]

50% deposit on order
30% once works commence
20% balance on completion