Payment Schedules and Client-Caused Delays

When a client's not ready for delivery on time, it's hard for the cabinetmaker. Contracts should allow for that eventuality. March 26, 2008

I am very careful to have cabinets ready when the job is ready for them, but quite often construction schedules get delayed. This means I have cabinets in the shop with no place to go. My contract, so far, does not include a clause for storage fees or other types of payments due when cabinets are ready to install but the job is not.

What do you do to help ease the burdens of both stored cabinets and a job ready but no money coming in until delivery or installation? I have been reluctant to charge a fee for the finished undelivered cabinets since the client has nothing in hand and really has no idea if the cabinets are actually finished. Charging a storage fee after a reasonable amount of time could help somewhat, but I fear that a clause like that in my proposal/contract might be a deal breaker.

Forum Responses
(Cabinetmaking Forum)
From contributor G:
Try to write payment terms and get a signed deal that includes those terms at commitment time. At least half the money for the job should be in your hands at or before the time you start the job in the shop. The balance should be paid upon delivery, and a delivery time should be stated in the upfront signed deal. It might read something like, "entire order to be delivered the week of January 13, 2008." A clause reading, "if delivery cannot be made as scheduled because of customer delays, balance of payment to be made in advance of actual delivery, when job is finished, ready to deliver, and in storage," might suffice. If you get a clause like that in the deal, make sure the client understands what it means.

Good luck! This is a common problem, dealt with by some hardnosed cab folks by just taking the load to the job, and finding a place to stuff everything. A contractor who knows he has to pay, whether ready or not, is more likely to at least prep an area for storage at the site.

From contributor Z:
I had a client postpone for 1 year. She was willing to rent a storage space. We even went in on the cost of blankets for a year and at the end I got to keep them. It is tough after you work hard to meet your deadline and the customer isn't ready. Not sure how to work this.

From contributor H:

I used to charge (bill) at installation, back when I didn't have better sense. 100% balance due at installation. Good grief! Cash flow problems, nitpicking, and scheduling (what's that?). I now get 50% when I start the job, 40 on delivery - that's immediately before the lift gate goes down - 10% at completion of installation. People get a whole lot more interested in "when will the cabinets be ready?" if they have a monetary interest in them.

After reading your post, the 40 should really be due and collected when the cabinets are ready to be loaded. Just come by and inspect them before I load them on the truck. At that point they are ready to be in the client's hands; you've done your part. They should be doing theirs.

From the original questioner:
Contributor G, I like the clause you referred to. I'll try that next time. It is not unreasonable to want to get paid for what is in the contract.

I do get 50% up front and balance upon delivery/installation. For large jobs that require long installation times, I ask for a three payment plan, but always with 50% up front. I would not want to simply haul my cabinets to a job that is not ready for them. I know that would cause some major dissatisfaction with my clients and might also be asking for damage to the cabinets prior to install. I do a lot of remodel jobs and the people usually don't have any place to store cabinets since their cars are in the garage, furniture in the house, etc.

A solution I thought might work is to wait and build the cabinets when they are actually ready to have them installed. That would mean I make them wait a couple of weeks (average) instead of the problems I have stated. But that could get ugly since I would have had their 50% for a while by that time. Your clause stating expected install dates is a good plan. At least it is in writing that way.

From contributor M:
50% to start. If we're installing, 40% before they leave the shop and 10 upon substantial completion. If we're not installing, 100% before they leave shop. "Substantial" means that they can't hold your payment for such things as plumbers or granite or missing door bumper or short a pull or on and on...

From contributor V:
Get 10% to book, 40% when you start. That way they won't be that concerned about you having 50% for a while.

From contributor L:
I get 50% on go, but I like the idea of 10% on booking - something substantial for them to keep in mind that they need to be thinking about me. I leave 10% to be paid upon final installation. Receiving full payment before all work is done is questionable in my mind. If you are worried about some secondary trade holding up payment, put a clause in your contract about that.

From my experience as a GC, I know that way too many people are not willing to return to complete if they have been paid in full. Their service goes downhill, they don't show promptly, and are less likely to do a really good job when you do manage to get them out for a call-back. You should be able to float 5-10% until the job is complete (within reason, but that can be put into the contract).

From contributor J:
In my contract I keep it simple - 1/2 down, 1/2 due at time of completion. In other words, if they try to use you as free storage, and a way to put off final payment, you have some leverage. I did do a job for the local stone and marble guy who needed cabinets for his showroom. I took a small deposit and now I'm stuck with his cabinets waiting for him to get caught up on his bills or collect from deadbeat builders for countertops.

It doesn't always work, as a deadbeat customer won't play by the rules no matter what! A clause where there is a monthly late fee like 1 1/2 percent sounds pretty good. They pay for cabs before they leave the shop, interest and all.

From contributor S:
I don't charge for storage, but for the last 15 years, our contract has required a deposit of either 25 or 50%, and then progress payments based on the percentage of completion as of the 25th of the month, regardless of whether the cabinets are delivered to the jobsite. I expect both the deposit and the progress payments to be paid around the 10th of the month. Due to the size of our typical projects, it is not unusual for cabinets to sit in storage for 1 to 3 months due to delays in the project. Waiting for payment until delivery or installation is not possible.

Most contractors are familiar with these terms, and expect the majority of their subs to send in progress billings every 25th, to be paid on the 10th. It is when they receive mid month requests for deposit payments or delivery payments that they get testy. This is compounded if they receive some kind of ultimatum about not starting or not delivering their cabinets until you're paid. Every contractor I'm aware of pays bills once a month like everybody else, and considers any other kind of request to be a nuisance.

From contributor E:
I do my payments a little differently and so far it has worked for me. I charge 40% for the down payment, 30% for a second payment once construction is complete and cabinets are ready to be finished, and the final 30% once installed. This works great since most of the job has been paid for before the cabinets get delivered. For smaller jobs I still use 50/50 as it's just easier and not as much to lose.

From the original questioner:
I appreciate all the input. My biggest problem is storage, but if I have to store the cabinets I am going to make it clear in my contracts from now on that I get paid most of the total even though they are not delivered. I thought about doing this before I posted this thread but wasn't sure how such an approach would be accepted by clients. The fact that most of you are asking for your money even though the job isn't ready makes me feel better about doing the same. I do think full payment prior to install is too much to ask. I'll let them have about 15% due at install completion. That is fair for me and it should make the clients more comfortable.

From contributor G:
Obviously, this is best handled in a completely different way, if a project is sold installed, rather than just materials only. I read the starter message in this thread as being from a supplier, not a supplier-installer. In the case of supply only, while I can agree with the client's view that it is hard to accept a "payment due" situation when materials are not delivered and in his possession, it is also difficult for the supplier to have his cash flow and warehouse space (if any) choked, for reasons beyond his control. That is why it is best, in the case of supply only of a cab project, to come to agreement at sale time, that the client, if not ready for cabs at project completion and delivery time, can make room on site for delivery and temporary storage. If this cannot be done, the client must agree to come to the place of supply to check out and verify that his order is complete and stored for later delivery. All this deal-making and understanding and agreement must take place right up front, or there will be problems at time of completion.

From contributor J:
Lots of good advice. There's advice for good customers and some for problem customers. Most clients are reasonable, and if the terms are spelled out in the contract most should not have a problem. When there is a client that takes advantage of every sub-contractor they meet, even a good contract won't mean very much. Builders do have delays and getting most of their money at time of completion should be a reasonable way to do business. I know that if I where to order an expensive woodworking machine that some of these companies require a deposit and the machine must be paid for before it leaves the factory. I see no reason why in certain situations we can't ask for full payment before the delivery also. How many times has a customer or builder who meets you at the jobsite forgotten their checkbook (for C.O.D. orders)? Not all clients are reasonable and fair minded. I have one now that I will ask for full payment before cabinets are loaded and delivered.

From the original questioner:
I like to have a standard format for all my contracts, with some exception based on the project size. In other words, I'm trying to come up with a payment schedule that will seem fair to the client and work for me. I only want to get paid for what I do per the contract. Those clients that are reluctant to pay based on the contract are people we will always run into, but once there is a clause in writing that they signed, they usually come around and do the right thing.

This problem of delays in scheduling that are out of our control should not cost us money. It seems reasonable to ask for payment upon completion of cabinets that are ready to be delivered. If the customer does not want them delivered, we are stuck with the storage, but why should we be stuck without payment for the completed cabinets? I do want all of this clear in the contract at the beginning of the job. That is what a contract is supposed to do.

I don't really see how a supplier only vs supplier/installer differs all that much. The only thing that needs to be separate is the payment for installation. That is easily handled by allowing a percentage paid at completion of installation regardless of when the cabinets arrive at the site.

It comes down mostly to educating the client at time of signing the contract. That is what I always do but I wasn't sure about a clause in the contract requiring getting paid before delivery beyond the initial 50% draw. I imagine this problem will mostly be a battle with the general contractors rather than dealing directly with a homeowner. GCs are always holding on to money until later.

From Jon Elvrum, forum technical advisor:
A clause in the agreement like contributor G's is a must, I think. Long ago a good friend showed me his solution. He was in a very small shop that had about zero room to store the last job through. His solution was a clause that specified where the goods would be stored and what the rental payment would be per month. In the few occasions he had to, he extracted 3 month's advance payment for storage and credited any unused portion at time of delivery, and collected all but 5% of the total, if he needed to execute this clause in the agreement. In the several instances he had to do this, he was paid enough that he did refund partial space rental fees in all cases.

From the original questioner:
I have come up with yet another idea to avoid taking up too much shop space with completed cabinets. Cut all parts, drill, dado, install all the hardware possible to cabinet parts, order doors, prepare small parts, but don't assemble the cabinet boxes until the job is within a few days of being ready for installation. The assembled boxes are what take so much space.

From contributor A:
I did this on a set last May. I finish the job this Sat. From now on I'll complete them, collect, and let the customer store them! The way I did it sure messed up the next several jobs.

From contributor X:
Deliver products to a secondary station that is set forth in your contract after a grace period has expired, thereby your contract allows you to be paid in full upon delivery to a secondary station. Different contract handles installation, etc.