Every signed contract carries with it the peril of cancellation. But you can cut down on cancellations by requiring deposits on scheduled work. In some states, laws regulate the amount you can ask for, so minimum deposits vary. The transaction signals a customer's seriousness, according to replacement contractors.
“We get fewer cancellations when we have a deposit,” says John Bryant, general manager of Mid-Atlantic Waterproofing in Laurel, Md. “We do it to protect ourselves and get a commitment from the homeowner.” Under Maryland law, contractors can collect up to one-third of the contract price of the project as down payment.
In California, laws are more restrictive, allowing contractors to collect deposits of 10% of the contract price, not to exceed $1,000. Greg Williams with Cal-Tec Construction in Fresno says even minimal down payments help. “On 99% of our jobs, we get a deposit,” he says. “When you don't get a down payment, it's a lot easier for the customer to cancel out. If a customer cancels outside the recision period, we charge a $200 administrative fee.”
Larry Eiteljorg, president of Century One Builders of Arizona, also charges customers a cancellation fee and typically requires down payments of 20%. Arizona, like many states, doesn't have any limitations on deposits. Eiteljorg says he doesn't always require them, but that customers tend to be more serious when they have to put money down. “We make custom windows,” he explains, “so we're making something that can't be resold.”
Jim Lett, president of A.B.E. Doors and Windows in Allentown, Pa., has the same concern. “Once our supplier has produced the product, we can't return it,” he says. Lett's company has been collecting down payments for 30 years, usually for a third of the contract price. “It helps to guarantee the job,” he says.
How do customers feel about deposits? Rod Troyer, president of Northwest First Choice in Vancouver, Wash., says occasionally he finds customers leery of making down payments, but because his company writes so many contracts, he finds it's safer to require deposits, usually asking for anywhere from 10% to 40% of the contract price, depending on whether or not it's a financed project. “I like the down payment,” he says, “because it definitely solidifies the work.”