Volume 42, Issue 2 - February 2007

the Farnady Files

You’ve Got My Money It’s Time to Start Paying All of Your Dues
by Dez Farnady

Most of the world expects you to pay as you go. The department store expects to see money, or its equivalent, on the counter as you pick up the goods. At the gas station you pay at the pump by swiping your credit card, so they’ve got you by your money before the pump even starts pumping. In most of the world we exchange dollars for the goods right as the transaction takes place. This is not quite so in the wonderful world of construction. 

How Low Will You Go?

Usually in the construction business you negotiate first to see for how little money you can get the opportunity to do the job. Then you spend your money for material and labor to see if you can even afford to finish it. Then, and only then, do you start waiting for your money. This may be a bit simplistic of a view, but in this industry you pretty much perform first and get paid later. So when your vendor comes to collect his money for the material he supplied for the job you have to give him the stock answer, “Hey, you get paid when I get paid.” And some vendors don’t necessarily buy that with the, “Oh, but you used to be net 30,” and next time it will be money up front. 

When you start your business no one tells you that not only is the government your immediate business partner, but you also have to become a banker for the contractors and developers and owners. Meaning, you’re essentially providing them with what amounts to an unsecured construction loan while you wait for them to pay you whenever they get good and ready. I am not going to talk about the hidden little extra costs that you may never get paid for like the undocumented change order with the “I thought that was part of your deal” or the “Can you take care of this for me?” type of extra costs of doing the job. We have all come to take it for granted that the cost of retention is also just part of doing business.

Collection Woes

And then there is the collection problem. Over the years I have spoken to many a glazing contractor who has cried out “I can’t bug him for the money, he is my best customer.” They are afraid of alienating the jerk who gives them all this great business that they have to price “competitively” while the guy pays for it whenever he pleases. The poor contractor can’t figure out that the only reason he gets all this hustler’s work is because he does it cheap and does not ask for his money. So how good of a customer is the guy who either does not pay his bills or leaves you waiting 120 days before deciding to give you anything at all? Friends like that we can all do without.

When the guy gives you all his business and you don’t make any money on it, it’s like the volume philosophy where you lose 10 cents on the dollar, but you make it up on the volume. Give me a break and get yourself a better calculator. 

There are a lot of contractors who like to be heroes, make friends and make deals but hate to collect the money once the job is done. There is a perfect way to do this if you have the manpower: one guy sells the stuff and the other guy collects the money. 

When I first went to work for him peddling glass, a very wise man once told me, the same as he told all of his salesman, “Get out there and just make friends. I will take care of the money.”

As for collecting your just due, you need to beat those guys on the head over and over again before they pay you just to leave them alone. That wise man also told me that when you make those calls you never just ask a customer for the money on an invoice that is 30 or 60 days past due. What you have to say to make sure you are really understood is, “Hey fellow, you’ve got my money.” 

Dez Farnady serves as general manager of Royalite Manufacturing Inc., a skylight manufacturer in San Carlos, Calif. His column appears monthly.

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