Client Financial Security

[Kelvin]

As we head into  uncertain times with the very real risk of small companies going bust I am looking at how to protect myself as we start the build. I know about buying on a CC to get consumer credit protection and getting goods you’ve paid for clearly marked as yours with pictures etc. The biggest single cost for us is the timber kit as it includes the windows from Nordan so will be around £155,000. I’ve yet to ask if I can split the contract and pay Nordan directly. 
 

The payment schedule is I pay 20% prior to kit production. Another 40% at fabrication, 17.5% after delivery and 2.5% post erection. The timber kit company will have a large sum of our money before the kit gets delivered. I’ve asked them what client protection they have in place should the worst happen. They were quite surprised I asked this question as apparently no one else ever has. They have suggested some form of insurance performance bond which I know is common in the building trade on larger projects. However this would be at my cost and won’t be cheap. Alternatively they will issue a personal guarantee from the MD. Not entirely sure what that’s worth legally.
 

I know someone who lost £40k to a timber kit company during the 2008 financial crash hence my concern. 

 

Any opinions on this? 

 

 

[kommando]

Using the credit card will cover goods up to £30K value in a single purchase, why not ask for the frame to be divided into 6 separate invoices covering different sections of the build each less than £30K. Then use a different credit card payment of £100 or more against each invoice.

[Kelvin]

I have asked them if I can do that already and waiting on a response. My guess is they won’t allow it. 

Edited August 24, 2022 by Kelvin

[kommando]

When I worked for a company subsidiary of a US major Automotive supplier and with Chapter 9 protection available, our major suppliers took out work in progress insurance with Euler Hermes who are now part of Allianz.

 

https://www.allianz-trade.com/en_GB/campaign/trade-credit-insurance-price-calculator.html?utm_source=google&utm_medium=cpc&utm_campaign=[Brand][MM][UK][EN][Leadgen][Euler_Hermes][E][P][Search]&utm_termeuler hermes&gclid=CjwKCAjwmJeYBhAwEiwAXlg0AaZjA5Z9Jc7o3uRFqt4mXDF2XAhXUA6vhKtQj61NUD6oG38wy7BQYBoCG1UQAvD_BwE

 

If there are any red flags against the Timber Frame maker then they will not issue a quote for a policy, so if they will quote then currently there are no issues. They used to withdraw cover on existing policies at the first signs of problems so really as much use as a chocolate teapot so do not take a policy out. So the companies that had the policies out on us, when the red flag came up, had to go to payment on delivery. So as a lorry drove up I had to get the invoice paid before we could unload.

[Kelvin]

Just noticed my % don’t add up. Missed out 20% at the procurement stage. So I’d have paid them 80% pre delivery and erection. 
 

There is an advanced payment bond you can buy. The guy I spoke with said they don’t do many of them and they are quite expensive something like 10%-15% of the contract value and maybe more due to the current situation. 

[Bonner]

Have you got an alternative quotation? That would help you to negotiate payment terms! I often find first quotes are heavily weighted in the supplier’s favour as they need to manage their cash flow and risk.

I would want the pre-manufacturing deposit as small as possible and protected by credit card. The 40% on completion of manufacturing and issue of a ‘vesting’’ certificate of title to the goods. This will help take possession in case the supplier goes into administration. Finally, maximum possible retention until after delivery and erection.

[markc]

All the above is good advice, what many customers do not appreciate is how much risk the supplier is taking especially with bespoke manufacture and taking up large time slots.

worst position to be in is supplying a building, putting it up and then the client says they can’t/won’t pay for it knowing you won’t take it back down.

so yes, negotiate the percentages as much as you can but please see it from the suppliers point of view too, good business is a win win situation

[Temp]

Escrow?

 

https://www.trustmark.org.uk/news/blogs/trustmark-blog/2016/03/18/tradespeople-can-increase-their-revenue-by-using-escrow

 

https://www.homebuilding.co.uk/advice/how-to-choose-a-construction-system

Quote

Choose a company with an escrow account (whereby the money is held in the account until an agreed point, and is kept separate from the company’s business account)

 

Edited August 24, 2022 by Temp

[Kelvin]

28 minutes ago, markc said:

All the above is good advice, what many customers do not appreciate is how much risk the supplier is taking especially with bespoke manufacture and taking up large time slots.

worst position to be in is supplying a building, putting it up and then the client says they can’t/won’t pay for it knowing you won’t take it back down.

so yes, negotiate the percentages as much as you can but please see it from the suppliers point of view too, good business is a win win situation

 

The kit supplier is taking a small risk. By the time it’s erected I’ll have paid 80% of the total. Prior to kit delivery and erection my exposure is 40%. 

[Kelvin]

44 minutes ago, Bonner said:

Have you got an alternative quotation? That would help you to negotiate payment terms! I often find first quotes are heavily weighted in the supplier’s favour as they need to manage their cash flow and risk.

I would want the pre-manufacturing deposit as small as possible and protected by credit card. The 40% on completion of manufacturing and issue of a ‘vesting’’ certificate of title to the goods. This will help take possession in case the supplier goes into administration. Finally, maximum possible retention until after delivery and erection.

I’m building one of their kits so can’t get alternative quotes. 
 

The vesting certificate is a good idea. I’ll ask if they do such a thing. To complicate matters they sub the kit manufacture out so my contract is with the supplier not the manufacturer. Same with the windows. 

[Kelvin]

16 minutes ago, Temp said:

Escrow?

 

https://www.trustmark.org.uk/news/blogs/trustmark-blog/2016/03/18/tradespeople-can-increase-their-revenue-by-using-escrow

Yes just reading about this. 
 

Fortunately everything else is coming in below £30k so section 75 protection is easy to manage.