I just started a general contracting business and was wondering what other builders are charging interest per annum on overdue accounts. Thanks
Discussion Forum
Discussion Forum
Up Next
Video Shorts
Featured Story
The RealTruck AMP Research Bedsteps give you easy access to your truck-bed storage.
Featured Video
Highlights
"I have learned so much thanks to the searchable articles on the FHB website. I can confidently say that I expect to be a life-long subscriber." - M.K.
Replies
I don't offer a revolving credit account. My contract spells out payments, the last one due in 10 days of completion. Each state has regulations for late fees and interest charges. These need to be spelled out at the start. HD charges 21%/yr here. The few times I've not been paid on time, I've just called to remind. Institutions, schools and corporations are always late. Sometimes as much as 90 days. After 90 days you can post a mechanics lien. Having a clause about liens on your contract can be a detriment to non or late payments.
I would talk to a lawyer. They can answer questions specific to your locale. They will also help tailor a contract that is specific to your work. A good one will also help tremendously with taxes, often saving you the cost their fee. A letter from a lawyer can also get the attention of welchers. Your business plan needs to be designed to deal with such occurrences. There is always more to your business than just the job at hand. People forget things you say, best to have it in writing.
1.5% per month is pretty steep as far as a loan rate goes but that doesn't stop many credit card companies. It also seems to be the # that many suppliers favor.
Pretty steep but the hurt your cashflow will take is even worse.
Jon Blakemore
What hammer said. In Ontario, our lien act does not allow a claim for interest in the lien, but you still have your contractual remedies. We also have an act that restricts your rights to interest at 5% p.a. if you fail to express your contractual interest rate as a yearly percentage. I suspect that may be relatively universal to other provinces/states. But if you go above 60%, then you get to start making licence plates. ;)
I'd make your interest provision up front in your construction contract and point it out when you review it with the customer before signing. Put it in your invoices as well. 24% p.a. is not uncommon. I have material suppliers that charge this much - payment net 30 or intersest is charged from the date of the invoice.
Cheers, Paul