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Guarantee of Payments

Guarantee of Payments

Guarantee of Payments

(OP)
We provide Engineering services to startup Biomass to energy companies.  In the past we worked with the fortune 500 where getting paid was never an issue.

Many of these startups have received their first round of funding.

How can we insure payment at the end of say a front end engineering package and cost estimate are delivered?

Are there escrow companies for engineering firms?

Can you recommend one?

Do you faithfully issue change orders and stop work until they are signed?

Does a letter of credit help?

FYI I have been in business since 1995.

Thanks,

Rocky Costello

http://www.rccostello.com

 

RE: Guarantee of Payments

I have two suggestions:
1.  Get a deposit (30-50%) before you start work.
2.  Invoice promptly and in small chunks.  This may require you to break your work into smaller phases.

-b

RE: Guarantee of Payments

Corollary #1 to the above post.

If the payment is late, stop the work.  The client will get the message.   

Mike McCann
MMC Engineering

RE: Guarantee of Payments

And get all agreements, including changes, in writing.  Much easier to take to court - if necessary.  If you keep it in small chunks, you may be able to go to small claims.  Large companies would rather pay then go to court.

Don Phillips
http://worthingtonengineering.com

RE: Guarantee of Payments

(OP)
Thanks Guys

RE: Guarantee of Payments

If you take msquared48's advice, you'll potentially be taking on a huge financial liability.  Be very careful about stopping work for any reason.  The owner/client is the only one who should do that.

Getting some money up front is a good idea, and having a written agreement is imperative, but the best way to increase your chances of getting paid is by careful client selection.  This is particularly true of most smaller, lesser known companies.
 

RE: Guarantee of Payments

I found requesting deposits pissed more people off than it was worth, a poor way to start a project, a relationship.

Poor payment is often due to miscommunication or other problem within your clients beaurocracy, including within their accounts payable group, office or person.

Payment terms should be defined in your proposal.  Your invoicing should exactly match your proposals scope of work, activities, work breakdown structure, phases, deliverables, etc., whatever you use.  Clear, succinct and complete invoices are mandatory; also quite rare, it seems universal practice for companies to issue confusing, incomplete, incorrect and/or extremely sparse detail invoices.

Follow up is always helpful: "...just checking you got my invoice I sent on ...".  On next invoice I include previous invoice payment status: received, outstanding, balance owing, and dates.

In short, you must not give any cause for payment delay.  In many years' project management late payment problem analysis could be traced to our own slip ups, often small or subtle, but enough.

I learned to treat invoices with same attention as a drawing or calculation / report: check them.

RE: Guarantee of Payments

pierdesign:

You are making two assumptions.
1)That they can pay.
2)That they want to pay.

Many startups seem to have trouble with both.  Asking for a deposit is a way to filter them out.

For most stable companies I agree with what you are saying about correct invoices and friendly reminders being key to getting paid promptly.

-b

RE: Guarantee of Payments

One other thing is to be very clear with your scope of work to avoid scope creep. Break the project up into smaller clearly defined sub projects, making each into its own contract, with starting a later contract contingent on a) your adequate performance and b) their payment for the previous contract. The reason for a) is it gives the contract symatry which increases enforcibility.

RE: Guarantee of Payments

I agree communication is important and I include a statement with each invoice so the client has a record acknowledging payment.  It even shows the received date so if future payments become tardy, my statements will show how the lag between invoice and payment is increasing.

I disagree about stopping work creating liability.  Liability was created when you agreed to the contract.  My contracts specifically state I have that right to suspend work if payment is not made but I would not do that without a few conversations with the client, and not at a critical time in a project that will hurt our relationship.     

Don Phillips
http://worthingtonengineering.com

RE: Guarantee of Payments

Not to pull or push one way or the other, but , I have seen corporate policy handed down to delay payments from the old 30 days, then stretched to 60 and later to 90 days.  Each time I asked if all the vendors would be informed?  The response was: they will find out when the payment arrives.

pierdesign says "relashionship", yep, if you don't have someone on the other side that will help out, it could be a lonely journey.

Getting contracts and descriptions is all good but there will always be that one customer that will change things and demand more than their share.  Suing them might get you some cash, it will loose you future work.  I always see these things as a risk, so I only risk what I can afford.

 

==========================================
Business Page   http://mech.e.tripod.com
------------------------------------------
Motorradtraum....www.tailofthedragon.com

RE: Guarantee of Payments

Some good recommendations above, my MO (and I'll repeat a few of the above) - as part of your proposal/offer include a payment terms section that includes:

 - a mobilization payment (I usually go for 10% - 15%) and don't start work until it is received.

 - work out a cash flow based on your proposal and set up monthly progress payments where you stay cash positive each month - that way if you do need to stop work for non-payment or other, you will have limited your exposure

 - provide final draft package and have a payment milestone for it so that at that point all but say 10% of the contract value has been paid - then release the final package after receiving that milestone payment.  At worse you will have 10% of the contract value at risk.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com
 

RE: Guarantee of Payments

That's exactly what I do Greg, only usually get 25 to 33% up front.  

And another thought - if the client is really having a problem paying because someone or some bank is being stupid about the situation, I can understand that, and will continue to work, allowing them the benefit of the doubt.  But when a client diverts money that is due me in order to go on vacation or pay other subs, as has happened, I approach the problem quite differently, and with no fear, as I do give myself that latitude in the contract.  Someone who does that, I will not work with again, so I have no fear of losing their business.  It's a non-issue.

Mike McCann
MMC Engineering

RE: Guarantee of Payments

All of the above sounds sensible, but I personally only get payment in advance if it is an overseas client or a private individual, but then it's 100% in advance. I just do a credit check to weed out those who don't have the money.

I can do this because the UK courts make it cheap and easy to recover money from any non-paying companies, and automatically allow for generous interest payments going back to the due date.  Individuals and overseas companies may howeve rbe more trouble than they are worth.

Regards
Seán
http://www.wastewatertreatmentplantdesign.co.uk/

RE: Guarantee of Payments

waterexpert:

You're lucky - in the States, it's frequently not worth the time to collect less than %2500.00 unless you go to Small Claims Court without a lawyer.  (At $250 per hour for a laywer, plus your time, that claim money goes real fast.)  Then, if you win, it's only a judgment in your favor.  You still have to collect. machinegun

Your time collecting is worth money too.  Better to avoid it.

Mike McCann
MMC Engineering

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