Nils Pettersson
Paying a deposit for large ticket items is the norm, but the rule of thumb is never to pay the full amount before work is done. So why are so many suppliers looking for money upfront?
In this article we cover:
- Self-builder question about paying for windows and timber frame upfront
- Why companies are asking for money upfront
- Process of paying for timber frame
Q: I’ve been asked to pay money upfront, from various suppliers, including a window company asking for 100 per cent payment before the windows were to be delivered on site.
I know it’s not recommended to pay for things in advance, and don’t intend to do so, but I’ve come across this issue with most timber frame companies I am considering to go with.
They are asking for 80 to 90 per cent before kit delivery. Why is this? Is my only option a bridging loan or will the banks give me an advance?
Nils says: In short, the banks in Ireland will only give you money for work completed on site and signed off on by an engineer. In our case we ask for 10 per cent of our contract price to be paid before any work is done on site.
We then fully build the foundation after which the customer makes a regular drawdown. Then we come and erect the whole structure and leave materials to finish the house on site after which the customer makes a regular drawdown.
So the customer needs to have 10 per cent as savings but this is never really a problem and usually a requirement for their mortgage anyway. The above however means that we build a completely bespoke house in our factory and order a lot of materials to deliver with the house.
We then ship the house across Europe and erect it on site with our team and a crane without being paid anything. It then usually takes some time for the customer’s engineer, bank, lawyer etc. to actually pay the money.
So, for every house we build we are taking a huge risk due to the drawdown process being tailored towards slow block builds. The banks don’t seem to have much interest in changing. The timber frame industry may need to start pushing for change.
So in the case of timber frame, I can understand that a supplier would ask for payment in advance as a result of them having to take a very big risk. If a bespoke house is manufactured for a customer and they suddenly cannot pay the producer is in big trouble. We do sign contracts with people before manufacturing but the contract is really not going to solve anything.
If someone cannot pay for a house after it was built and they were theoretically brought to court, they can still not pay for the house. Especially in Ireland we do not have much legal security.
We have looked into ensuring that people have full mortgage approval before progressing but it turns out that “fully underwritten mortgage approval” is still not a guarantee for a mortgage, it can be subject to x, y and z.
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