Deposits, progress payments, and why net 30 doesn't fit custom work
A custom job spends your money from week one. On net 30, the customer's money arrives around week ten. Here's how to set your payment terms on the quote so you're not paying for the whole job yourself.
Net 30 was made for suppliers selling stock off the shelf. They ship it today and get paid in a month. On a custom job you've been paying for material and labor for weeks before it even ships, and then you wait the month on top. For all of those weeks, it's your money paying for the job. Set your payment terms to match how the job spends money: a deposit at order, a progress payment at a milestone the customer can see, the remaining balance at delivery.
Where the cash actually goes
Take one order: four custom tandem-axle galvanized trailers for a fleet customer. Quoted at $80,000 on an estimated $52,000 cost, a 35% margin. Six weeks from order to delivery, one invoice when they ship, net 30. Here's what happens to your bank account while they're built.
Profitable on paper, short in the bank
That order makes $28,000, and the money is real. It just isn't in your bank until week 10. Until then you've paid for everything: the steel, the axles, six weeks of labor and the galvanizer.
And you're never carrying just one. Most shops have a few jobs like this on the go, each starting a week or two after the last. Each one is still out of pocket when the next one starts, so the money you've put into jobs keeps piling up.
That's how you end up booked out for weeks, on good margins, and still struggling to make payroll and pay the steel supplier. On net 30, the more work you win, the deeper the hole gets.
On net 30 you lend them the $52,000 it costs to build their trailers, for nine weeks, interest free. And you carry the risk. If they pay late, dispute the finish or go under, it's your money stuck in the job, not theirs. No bank would make that loan on those terms. Most shops make it on every job.
Get paid late on one job and you can't afford the steel to start the next one.
None of that is a pricing problem. Your price is fine. The problem is when you get paid, and you set that with the payment terms on your quote. Here's how.
Three payment options that fit custom work
We work with hundreds of custom fab shops. These are the three payment options we see work. The percentages are common splits, not a rule. Pick the one that fits the job.
Good for short jobs, new customers and jobs with bought-in parts.
On this order you're out $12,000 for 3 weeks, not $52,000 for 9.
Good for jobs over a month, jobs with outside services, and jobs you install.
On this order you're out about $8,700 for 3 weeks, not $52,000 for 9.
Good for railings, stairs and structural work installed on site. This is where builders' retainage and progress billing come in.
Not needed for the trailers. They're built in the shop and delivered in one go.
The milestone has to be something the customer can see or sign off. Otherwise it looks like you're asking for money for no reason.
How much of your money a job ties up
Put in a job you're quoting. You'll see what each way of getting paid does to your bank balance, and how much you'd lose if the customer never paid the rest. It starts with the trailer order.
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HOW THIS IS WORKED OUT
- The job costs 65% of the price (a 35% margin). The cost is split like the trailer order: material is 40%, paid in week 1. Bought-in parts are 18%, paid in week 2. Outside services are 12%, paid the week before delivery. The rest is labor, spread evenly across the job.
- Net 30: one invoice at delivery, paid after the number of days you entered.
- Option A: 50% deposit with the order, the rest paid 7 days after delivery.
- Option B: 40% deposit with the order, 30% progress payment two-thirds of the way through the build, 30% paid 7 days after delivery. Each progress invoice is paid 7 days after it's sent.
- Most you're out of pocket is the most of your own money in the job at any one time. "Lost if they never pay the rest" is what you've spent on the job that the customer hasn't paid for by delivery.
- Jobs you can carry at once is your bank balance divided by the most you're out on one job, rounded down. Nothing you type is stored or sent anywhere.
Which payment option fits your job
Answer three questions about the job you're quoting. You'll get the payment option that fits, and a line to put on your quote. It starts with the answers for the trailer order.
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Not legal advice: terms, retainage and late-payment rules differ by state and by customer type, so check yours.
What to say when a customer pushes back
Customers usually say one of four things. None of them needs an apology. Pick the one you heard.
The same payment terms, with the invoices made for you
You can do everything on this page with a quote template and a calendar reminder. In Factory the invoices come off the job instead, so you never forget to send one.
The deposit invoice comes off the quote. When the customer accepts, it's built from the lines you already quoted.
The progress invoice comes off the job. When the frames are welded, it's ready to send.
The remaining balance is invoiced on delivery. The job shows what's been invoiced, what's been paid and what's left.
The books match the job. Every invoice and payment syncs with QuickBooks, Xero or MYOB.
Straight answers
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See it on your own jobs.
Bring a job you're quoting. We'll set up the deposit, the progress invoice and the remaining balance on it, live, inside Factory. No slides.
See if Factory fits your shop.
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Got it. Expect our call.
We'll call you within one business day for a quick five-minute chat.
Want to pick a time instead? Book a demoWe don't just build the software. We know the work.
Straight advice on running a more profitable shop: pricing, cash, people and the floor. Written for fabricators.