Contractor Cash Advance
DEAR TIM: My contractor has asked for money "up-front" before he starts my room addition job. I don't feel comfortable doing this. Should I give him the money? M. M.
DEAR M. M.: There are very few occasions where you should advance money prior to the start of a project. Only when your project requires a special planning or a custom ordered item which is non-returnable, should you advance money to your contractor.
You should advance only the cost of that item or an agreed upon amount for the planning services. In the event you pay for plans in advance, be sure to stipulate that the plans are your property, not the contractor's. Certain state laws may also allow or require cash deposits. If you live in such a state, be sure that the deposit does not exceed the maximum amount allowed by law.
Many contractors have established credit with their suppliers. They pay these companies on a monthly basis. Often these same terms are available with subcontractors. These individuals sometimes will often be satisfied with a payment from a general contractor within 15 to 30 days of completion of their work.
Rest assured that your contractor will not pay his suppliers in advance for standard in-stock items. I absolutely can guarantee you that he will not pay his subcontractors in advance. If a contractor needs money prior to the start of a project, it is possibly a sign of his financial weakness. Maybe this individual does not have established credit. Maybe he is in a cash pinch because of poor business management.
The deposit from your job may be used to pay bills on his current job or maybe even a past one! Advancing money up front reduces your leverage power at the end of the job. Why? Because you are also basically giving the contractor his profit before he has started the project. This is an extremely dangerous thing to do.
Financially strong contractors do not need money at the beginning of a project. They generally have sufficient cash reserves to carry a project for 30 or more days. Contractors pay their suppliers and subcontractors on a regular basis for completed work or delivered supplies. You should consider doing the same with your contractor.