Paying upfront - what is reasonable?

[maxi77]

Last year we ordered £3000 worth of kit at the Raymarine stand at the LBS, and paid in full there and then. As we subsequently found out, we weren't actually buying direct from RM but from a dealer that helped them staff the stand.

3 weeks later that dealer went bust and we received nothing. Fortunately as some (not all) of the purchases had been paid for by credit card and as RM took an 'enlightened view' we were able to minimise the loss.

However after that experience I said never again would I pay up front for later delivery/manufacture unless by credit card.

I have now fallen foul of that promise to myself with an order for some custom made items from a small company (with an excellent reputation, but it is small - not even VAT registered) that wants 50% deposit with order but does not offer credit card facilities.

I have made the point that if Comet can go bust anyone can go bust; indeed RM would not have chosen anyone they thought as being in financial trouble to help staff their stand. Once bitten twice shy and all that.

The business owner is basically saying in that case he doesn't want the work. Fine - you say - go elsewhere then. However most other businesses providing the same service are also small and would require 50% deposits and wouldnt have credit card facilities

I dont think the actual cost of materials is more than maybe 25% of the total cost so what is to be done?

I have found an escrow service https://www.trustedfriend.com that charges a flat £3 fee (which i would be happy to bear). Is it unreasonable to expect the tradesman to agree to use this service.

I feel that he has taken umbrage that I am effectively calling his financial health into question, but I see that as no different than his asking for a 50% deposit - I take no offence at that, I just want my cash protected!

I'd be interested in others views. I have deliberately not said whatthe item of equipment in question is as I dont wish anyone to speculate on which company it is. Until we hit this impasse I was highly impressed by their level of service and if I can resolve this problem I very much wish to use them so i dont want to bad-mouth anyone here!

Thanks for any advice.

Simple if you don't like his Ts & Cs go to a bigger company and pay their price, and the 20% vat on top.

If he is small enough to avoid VAT he is unlikely to be able to carry a big overdraft for WIP especially in the present climate, just the risk you take for low prices.

 

[skyflyer]

Sell your 1/3rd share and take up bowls.

Less risk

Since you have correctly identified the fact that I am a 1/3 shareholder you may be interested that my co-owners also feel its not worth the risk. Evidently, nearly losing £3K affects one's judgement

 

[skyflyer]

Simple if you don't like his Ts & Cs go to a bigger company and pay their price, and the 20% vat on top.

If he is small enough to avoid VAT he is unlikely to be able to carry a big overdraft for WIP especially in the present climate, just the risk you take for low prices.

Keep up - he wasn't the lowest price

 

[charles_reed]

To answer the original question.

It is quite reasonable for any company (or sole trader) to ask for re-reimbursement of any costs they incur for the purchase of material to fulfil the order.

Payment of the value-added proportion of the price should be due on satisfactory completion of the order.

You and your partners should take a view on how much of the order is taken up by the cost of raw materials.

As an aside you can demand that such materials should be marked as being your property, on delivery to the suppliers premises - in the event of him going bust you can then reclaim those materials from the liquidator.

PS VAT in the UK is now 21% and I doubt that he is non-VAT registered - if he is unable to reclaim VAT, he'll have paid the tax on the materials he has purchased in any case. You'll only save VAT on the value-added element if he's seeking to avoid tax by a cash transaction.

PPS An alternative would be for you and your partners to purchase the raw materials and deliver them to him, pay him for his work, thereby making him a sub-contractor to you.

Personally I feel that you and your partners are being unreasonable.

 

[Talulah]

...PS VAT in the UK is now 21%...

I certainly hope not.
(although it is in Belgium, Latvia and Spain. 27% in Hungary.)

 

[charles_reed]

I certainly hope not.
(although it is in Belgium, Latvia and Spain. 27% in Hungary.)

Oh dear, we are out of date.

Mind you they're all kleptocrats.

http://www.revenue.ie/en/tax/vat/leaflets/increase-in-standard-rate.html

 

[John the kiwi]

Personally I feel that you and your partners are being unreasonable.

I think you are being entirely reasonable.
I was bitten when we paid a deposit on aluminium joinery and the firm shut its doors next day. It was part of a national franchise with all the flash national advertising but the local franchisee went bust and the national franchisor told us "tough luck!"
For big contracts a Letter of Credit is often used. There seems a crying need for a simple mechanism that does similar job for small stuff.
Having 3k taken from you with nothing to show for it and no recourse does leave you feeling violated and outraged.

But for sure its not about trust or lack of it. Your supplier could believe himself to be and actually be solvent today - but tomorrow when his biggest contract falls over cos that customers customer reneged because - because etc it can very suddenly be a different story..

Good Luck

 

[Blue5]

The answer is go somewhere else, you have an impasse.

I am self employed, VAT registered but do not take credit cards, I ask for 50% deposit if I am making bespoke items. Like a lot of self employed tradesman, people arguing over deposits make me nervous and while I am sure you are a fine upstanding citizen I take the view that if the deposit is causing a problem the final account will to. If the guy is not a limited company even more chance he will not go bust as he has no limited liability.

 

[Salty John]

PS VAT in the UK is now 21% and I doubt that he is non-VAT registered

VAT in the UK is 20%.

 

[Chalker]

UK Govt seem to think that the VAT rate is 20%. Check the nationality of the earlier link.....

https://www.gov.uk/vat/overview

 

[Lakesailor]

The answer is go somewhere else, you have an impasse.

I am self employed, VAT registered but do not take credit cards, I ask for 50% deposit if I am making bespoke items. Like a lot of self employed tradesman, people arguing over deposits make me nervous and while I am sure you are a fine upstanding citizen I take the view that if the deposit is causing a problem the final account will to. If the guy is not a limited company even more chance he will not go bust as he has no limited liability.

Spot on. I used to offer a hefty discount for payment on delivery (different business, photography) for first time customers.
If they didn't bite and would rather pay more for 30 days credit I was wary.

I'm sure the OP is not flaky or he wouldn't have raised the matter, but the guy he is wanting to deal with is probably very wary of new customers.
Recent post about gin-palace owner and boat name vinyl springs to mind. Small businesses are better making a coffee and sitting about than having a week's turnover disappear.

 

[skyflyer]

The only significance of my mentioning VAT is it means his turnover is less than £70,000. Not interested in any 'cash discount' scam etc.

Many forumites are still missing the point - I have no problem paying 100% up front if my payment is protected. I do not dispute that it is a reasonable show of faith to pay 50% with order.

The only problem is that my 50% (or whatever %) is at risk if his business folds before the item is delivered. In this day and age, with a small business that is not at all unlikely - and he may have no inkling that it is about to happen

As I know I will pay in full, in my eyes the risk is all borne by me, although I can see that he doesnt know that and will see it differently

 

[sailorman]

The only significance of my mentioning VAT is it means his turnover is less than £70,000. Not interested in any 'cash discount' scam etc.

Many forumites are still missing the point - I have no problem paying 100% up front if my payment is protected. I do not dispute that it is a reasonable show of faith to pay 50% with order.

The only problem is that my 50% (or whatever %) is at risk if his business folds before the item is delivered. In this day and age, with a small business that is not at all unlikely - and he may have no inkling that it is about to happen

As I know I will pay in full, in my eyes the risk is all borne by me, although I can see that he doesnt know that and will see it differently

10 yrs ago a woman contacted me out of the blue, i did not know her or she me.
she wanted a very large "Fitted" bespoke wine rack system made, she had photos from the internet.
i measured up, got a price from the joinery company i use.
my involvement was 2 of us fixing that equated to 4 man days max.
i quoted £4k with 50% with order, now my exposure was great for 4 days work + paying my supplier.
she paid up, job done pdq, we got the balance on completion & everybody was happy.
i was not VAT reg at the time either

 

[skyflyer]

Materials can not represent more than £150 in this job - tops.

So, either he needs the money for materials - in which case we are right to be wary of a potential fold - or he is wary of me as a new customer - in which case the escrow service should be a satisfactory solution.

I have just had an email saying it is 50% cash/cheque/bank transfer or nothing.

I have said we will use a different supplier.

I tried to find a compromise, I really did

 

[Ex-SolentBoy]

Many forumites are still missing the point - I have no problem paying 100% up front if my payment is protected. I do not dispute that it is a reasonable show of faith to pay 50% with order.

This is a very simple problem.

1. You are concerned he may go bust and you lose your deposit.
2. He is concerned you are going to default in payment.

The solution to your problem is some sort of payment protection.
The solution to his problem is a bigger deposit, which only makes your problem worse.

As I said up front this is simple and you might not like the answer. There is no simple solution.

The very fact that you are in this situation is because he is a small business and will not accept credit cards. He is not willing to accept a smallish loss on his margin and the cost of any sort of payment protection scheme, via escrow or wehatever is going to be way outside your comfort zone.

The only partial solution I have ever found to this situation is to offer to pay the extra credit card commission and pass the payment through a third party, normally one of his friends that will act as broker and who does take credit cards or Paypal.

 

[claudio]

Materials can not represent more than £150 in this job - tops.

So, either he needs the money for materials - in which case we are right to be wary of a potential fold - or he is wary of me as a new customer - in which case the escrow service should be a satisfactory solution.

I have just had an email saying it is 50% cash/cheque/bank transfer or nothing.

I have said we will use a different supplier.

I tried to find a compromise, I really did

Wow, so are you going to pay this supplier for the time and the expertise he has provided to you?
Small companies can not afford to give their time for free. It is this sort of attitude that will make the honest, skilled supplier go bust.
Don't be surprised when small business start to ask for a pre sales consultancy fee or no deal.

 

[Chris_Robb]

Claudio

You miss the point; I am happy to pay not just 50% but 100% up front. I am sure he will do a good job and deliver on time - if he stays in business!

The point is that if he goes bust then I lose what i have paid and have no come-back. Of course he says he is not about to go bust - so did the MD of Comet a week ago!

He says he wont go bust - I say I won't go bust (ie I will pay him).
This 'mexican stand-off' could be solved if he took credit cards - he doesn't!


If he goes bust the Small Claims Court will get me nothing - you cannot get blood from a stone.

So the problem is not the principle of paying a deposit, its the matter or protecting my deposit.

No established business worth it's salt runs on such a shoestring that it NEEDS to be financed to the tune of a few hundred pounds for materials. If it does, then I have good reason to be worried.

If it does not, then his concerns are not about having the funds for materials but whether I am going to 'stiff him' for the balance.

I don't think anyone did miss the point! As a business, I would not do work without a decent deposit especially one off stuff. This is a prefectly reasonable request.

Note as well, that paying 50% in advance helps his cash flow, and thus he is more unlikely to go bust.

Perhaps the way to look at this is:

Pay him on commencement of work, with a delivery date. That will leave your daylight exposure to a minimum, and he should be happy with that. You are also likely to get a firmer start date too!

 

[skyflyer]

Claudio

No I am not - nor am I going to invoice him for wasting my time either. I dont suppose he offered any expertise or suggestions that any other supplier of the same goods could offer. If you get three people to come and give you a quote do you pay the two unsuccessful ones for their time? No!

I offerred a no cost solution to him.

I would pay 100% of the quoted fee to an escrow service and bear the costs myself (£6).

He could then see the money had been paid - in full - to an independent third party. I could not take that money back without his agreement and he could not get that money out without may agreement. if we couldnt agree the escrow service will arbitrate for a fee of £20 which I offered to pay if ever needed.

However i have no doubt he would do a good job - I wouldnt have asked him to do it if not!

So my solution to his "problem" that I might not want/be able to pay was rejected.

 

[jimmy_the_builder]

Materials can not represent more than £150 in this job - tops.

So, either he needs the money for materials - in which case we are right to be wary of a potential fold - or he is wary of me as a new customer - in which case the escrow service should be a satisfactory solution.

I have just had an email saying it is 50% cash/cheque/bank transfer or nothing.

I have said we will use a different supplier.

I tried to find a compromise, I really did

Escrow is a bit heavy-handed for £400/£800. You're over-egging the pudding for a relatively small amount of cash. The 'compromise' here would have been to credit check the business, and proceed accordingly.

Cheers
Jimmy

 

[Jim@sea]

I would try and find out if the premises he operates from are owned by him or rented, For around £6 you could go on the Land Registry web site, enter the address and find out who owns the property, and if it is the business owners name and he is not operating as a LTD Co, you should have more protection.