Contractors: If I Buy Materials, Do You Still Need a Downpayment?

[Mindy Jensen]

I've seen so many forum posts advising NOT to give any money to contractors upfront - because so many people have been ripped off by contractors. 

I've seen many responses from contractors, saying they've got to buy materials, pay their workers, etc and if they don't know you, you should expect to pay a deposit.

I can see both sides of the problem.

Contractors, if I foot the bill for the materials, your risk is lessened.

How can I propose a fair solution to my contractors? I will happily foot the bill for supplies so they aren't out any money out of pocket, but with the prevalence of contractor-stole-my-money stories, it makes it hard to fork over an upfront fee.

[Tom Shallcross]

@Mindy Jensen - great question and I'm interested to see what others say.   When one of my top contractors and I just started working together and we hadn't built up our current level of trust, we structured our first deal like this:

-I purchased all supplies.

-No money upfront but weekly payments to ensure quick cashflow for him so he's really only waiting a week for that first check.  I'd come to the property every Friday and he'd get a check on the spot for proportion of work completed (if 4 week project 1/4 of our total unless behind schedule).  He never fell behind paying his guys because he got a check every week, went to the bank and paid them out.  This was a little labor intensive but worked to get the relationship off the ground.  

-I had the benefit that he knew other contractors I had worked with so I told him he can talk to those guys to ensure I have always paid on time and treated them right.

At the end of the day, it doesn't hurt to remind him it's a competitive market and others have accepted these terms.  If he's not willing to accept or can't operate his business without having some form of a payment for at least a week (while you're buying supplies!) it's probably not going to work out.