When a Commercial Client Won't Sign a Contract

or sign on the dotted line. February 6, 2007

I just quoted re-facing 3 bank lobbies in our standard terms 50% down 40% completion 10% 30 day net and said if agreed I would bring by a contract for signature. Their response was that they don’t sign contracts without anything down; they pay 100% 45 days after the invoice. I have never heard of these terms I feel like I’m in the middle of a forest fire and I can feel the flames. Is this typical for banks? Does anyone have any suggestions on how to proceed other than the obvious walk away. I'm sure I would get a PO witch will have protection in for them. I'm thinking no contract, no warranty at all? Any suggestions would be appreciated

Forum Responses
(Business and Management Forum)
From contributor F:
If you went to any bank for a loan, you would be required to sign a contract and accept their terms. Why should you not do the same? If you have terms, stick to them, or don't do the work.

From contributor T:
I have had the most problems collecting final payments from companies that challenged, or wish to change, our standard payment terms. Stand firm on the terms, but ask for the order.

From contributor H:
Don't do the job unless you have your terms.

From contributor O:
Factor into your price the hassle of waiting at least 45 days and maybe 120 days. Maybe 15% to 20%. Then offer to give them a 12% discount if they pay on your terms. Either way you win.

From contributor E:
I am sure someone will dispute this because they can force their terms, but the facts of life when dealing with corporate America is that all you are going to get is a purchase order, a meaningless promise to pay sometime, and a demand for timely delivery.

If you can't afford to wait out payment for 90-120 days, do yourself a favor and pass on the job. I have had many a deal go south when the terms are all set and then we get to the topic of a deposit. Unfortunately corporations think their name is all that you should need. Rarely will they give a payment in advance. Any form of cash in advance is the kiss of death to the job; they just don't operate that way. Many will pay $100 for $25 worth of work, but if you offered them a $100 worth of work for $25 if they put half down, their system of operation just won't allow it to happen. I have found most company purchase orders are honored, and actually many times a client within the company has to go out of his way to interfere with the almost automatic payment system.

From contributor V:
Stick to your terms. We get a fair or better percentage of large corporate clients and have none of them have failed to meet our terms - 50 down, 25% halfway through, and the final 25% on completion prior to release.

From contributor R:
Sure do wish that I could work with the corporations some of you guys work with, if they would actually honor their PO's life would be great. My experience has been, time and time again, that PO's are quaint documents that mean squat.

I have one company based out of Atlanta, with a worldwide brand name, that repeatedly paid 50% of the PO around 120 days, and the rest whenever. I don't do work for them anymore. It costs time (which is money) to make the phone calls and send the emails to actually keep it going that smoothly. It's a tough world out there, and I've all but given up on large corporations.

From contributor B:
There is residential and commercial ways of doing business. Your terms are for residential work and the terms the bank wants is typical for commercial work. I would not expect them to pay your terms. Perhaps you could break up the contract into 3, one for each lobby and get the money rolling that way. That’s number 1. Number 2 is the unwillingness of the bank to sign a contract, Big Red Flag. Every contractor I've come across that either wants me to sign their contract (and not use mine), or says that they don't usually sign contracts have been trouble.

From contributor J:
The only way to run your business is with your terms. I would now offer them 50% on contract and 50% upon delivery of doors - final payment before install of the doors.

From contributor M:
I offer terms for companies who do at least $3K a month for 3 consecutive months. If it is a larger amount, I will break it down in payments based on milestones. But the reality of the matter is that it can be difficult to collect money owed when the project is completed. They basically have little incentive to pay in a timely manner, if at all. And lawsuits for less than $20,000 are a waste of time. It takes too much time to collect, and many know that most will not sue.

Trust your gut. It seems like the very fact that you were fishing for responses leads me to believe that you are skeptical. Why do they not want a contract?! As others have mentioned, they demand contracts when it is in their favor. And I doubt that they have a lack of attorneys who can review this contract.

From contributor A:
Get used to these terms if you want to work for corporate America. I used to work for a big corporation that would only do business on a P.O. They had a shop in-house that would get cut off by suppliers regularly because they couldn't pay their bills on the supplier’s terms. No big deal, find another supplier.

Lots of companies are eager for the sale and will extend credit on a P.O. thinking that it is a good risk. Usually you will get paid (eventually) after everyone is happy and the invoices find their way through the system. This could be a long enough wait that you will be broke and out of business by the time you get paid if your pockets aren't deep enough.

Everyone wants the pricing of the hungry small guy and the terms of the big guy who can afford to wait to get paid. I have seen people get a deposit before when it was "not the way they do things" but you need to know which strings to pull. From what I've seen this requires having a good personal relationship with whoever approves the invoices to be paid (probably someone in the purchasing department).

From contributor C:
Is there a GC in between you and the Bank? I get 50% down from corporations all the time. It is usually not a problem. I don't think the person in this bank has much purchasing savvy. The contracting industry uses these terms a lot because they are undercapitalized and typically screw and get screwed especially in residential markets. Highly reputable firms that use this method expect to pay for 120 days of interest in the deal and the prices are a lot higher. If you are unsure or uncomfortable about any of the details run away from this customer.

From contributor N:
I work for corporate America and a Fortune 50 business. We never ever accept terms of any other company - not even mega corporations like GE. If we need to we call legal and they call there legal and we spend $200K writing new terms for a $1M project losing any savings we negotiated. Accept their terms but adjust your price to receive payment 90 days after delivery (i.e. interest and opportunity cost.) Do this if you want the business and if there is a chance for more business from them.

Contracts are only worth the paper they are written on. Pull a Dunns and Bradstreet report and see if they pay their bills. You can break a contract and never pay a dime - it happens all the time. If they are a company with a good history and the business is worth it increase your price and take the PO. Price it to make the risk worth while.

From contributor N:
Good luck on the job. I understand that contracts make everyone feel safer but the truth is that they are not worth a dime if the integrity of the corporation or individual who signs on the dotted line is lacking. Like it or not that is the way it is. I do not mean to be misunderstood, contracts are good. We should use contracts. If someone refuses to sign then you as the business owner need to weigh the risks and either accept them or not.