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Deposits: How much is fair?

I have always had a policy that I never do any custom work on my nickel. So I have always had a very specific payment schedule, one that favors me much more than the customer.

I usually ask for at least 10 percent as a retainer, which has to be paid upon signing the proposal (or agreement or contract or whatever you want to call it). Then I produce whatever drawings are needed along with samples of moldings, finishes, etc. When everything is "good to go," there is a 40 percent deposit, which I use to buy the materials. Then there is a "progress payment" of another 25 percent due when the project is approximately 75 percent complete. The final payment of 25 percent is due on completion. Note the word completion ... not delivery.

I have been in a number of situations in which the project was complete but for one reason or another, the customer was not ready to take delivery. This way the payment is due when the work is done. Sometimes the customer wants a "retention," a percentage of the contract amount held back for an agreed upon time. I never allow retentions. Or if I do, it's never more that 5 percent, never more than one week, and I always try to hold something back until I get it.

If you are a contractor, you are probable sputtering by now because, in most states, the contractor’s laws do not allow this kind of payment schedule. And that is the main reason I never became a contractor. I simply will not do custom work out of my own pocket. As a manufacturer, I can write my own deals.

Personally, I don't think a deposit of 50 percent is at all out of line for custom work. After all, it's not like you can just sell a set of cabinets designed specifically for one kitchen to someone else if the customer doesn't pay for them. Even a custom piece of furniture that is not "fitted" may be difficult to sell if the customer "goes south" for whatever reason. So, if I ever get stuck with a piece or a project, I want to know that at least I didn't build it with my own money!


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