In an earlier blog, we explained some of the important things you need to do when appointing a contractor to do work in, on or around your property. Here we consider another important aspect of the process, paying for work done:
- Cash remains perfectly legal tender, and some contractors may appreciate payment by this method. But to be honest act with great caution. They may not be reporting it correctly in their business records, and if there is a dispute cash payments are far more difficult to record, trace etc. Far preferable is to make payments by cheque, or these days, electronic transfer.
- Remember that many contractors, such as window cleaners and gardeners will be small sole trader businesses. For them cash flow will be critical. Your job may well be funding their immediate expenses. Sometimes things like double signatures can lead to delay in making payments if one of the signatories are away on business or holiday. Ensure arrangements are in place to keep such delays to a minimum.
- Never commission work without knowing you have the ability to pay. If you commission a substantial piece of work such as redecoration or repairs, make sure that either there are adequate reserves or the leaseholders have made agreed contributions into the bank account. Do not rely on promises, however creditable.
- Some contractors will require money in advance. This is perfectly legitimate as they will have up front costs such as materials and perhaps scaffold. Particularly for large work, make sure a payment schedule has been agreed up front. In addition to up front contributions agree a retention amount that will only be released once it is confirmed the work is done satisfactorily. This should be something like 5% or 10% the value of work and should not be withheld unreasonably.
- Equally, if a price is agreed, it is not smart to try and knock some off the eventual payment. Discuss the price up front, and only discount payments if you can demonstrate a measurable basis upon which you are doing it, such as certain aspects of the job not physically being done. Services such as small claims courts will not look sympathetically on unsubstantiated shortfalls.
- Many contractors will charge VAT. Currently this is 20% on most types of work undertaken on properties. Very few management companies are VAT registered, so cannot reclaim the tax. Remember this cost when agreeing prices because it is not usually calculated in quotes, simply the term ‘+VAT’ is used. For certain specialist work, different rates of tax can apply, it may be worth just checking the contractor is charging correctly.
- Make sure you have a receipt from the contractor. You will need it for your account records, and you will need it if there are any subsequent problems with the work done. Some contractors may provide very basic receipts, sometimes just an email. This is not necessarily a problem in itself, but the more detailed the better.
A Managing Agent such as PM Property Management will be familiar with paying contractors and will have the systems set up to do so quickly and effectively.