How to sort of payment issues once and for all

[henry1]

This may be a DIY forum but occasionally some of us will need to use the services of a pro, aka tradesmen.
We've all heard stories of tradesmen taking the money and not finishing the job, or doing a poor job and not coming back to fix it after getting paid.
There's also the other side of the coin where people don't pay tradesmen after they've done all the work required.
How could we resolve this?

I thought of the tenancy deposit scheme and that something similar could be done. Homeowner pays the money to a trusted, neutral 3rd party. Tradesman gets notified and knows the money is there waiting for him if he does the job. After the job is done, the money is released but a small amount could be withheld for a short time for some jobs in case repairs are needed, e.g. plumber leaves a leak. The customer cannot get his money back once paid into the scheme unless the job is not done or the tradesman agrees.

Both parties are protected. The 3rd party could act as arbitrator in case of disputes. The scheme has to be free for all and for any monetary amount and no one is obliged to use it, but who would not want to use it? The scheme pays for itself from the interest on the money held in deposit. This scheme could even be used for any transactions, not just tradesmen, e.g. accountant, caterers, tutors... It should certainly give a boost to trading when both sides know they won't get cheated.


I think for a scheme like this to take off and become commonly accepted by all, the gov needs to be behind it. Even when the tenancy deposit scheme was made law, many years later some landlords had still not heard of it!

I know this is just a dream but what do you think of this idea? Are there any downsides?

 

[blup]

It assumes that tradesman are dishonest and that the public pay up. Why give them a reason to withhold payment. The cowboys wouldn’t join such a scheme so basically an unnecessary bureaucracy weighted against the tradie. Nothing is free so a percentage would go to pay the people who run the scheme including arbitrators who would milk the cow. Far better to have a clear understanding of what the job entails from the outset using personally recommended tradesman. A lot of disputes arise because the customer doesn’t understand the basis if the agreement

 

[henry1]

Well, current system isn't working very well...
It's great that cowboys won't join such a scheme, it will be an easy way to weed them out.
Why would this scheme be against the trades? It's to their advantage as they'll be sure to get paid at the end of it.
Yes, nothing is free, but the interest would pay for the scheme, just like there is a free tenancy deposit scheme and nobody is being milked.

 

[gas112]

What makes you think the current system isnt working it does in the vast majority of cases

 

[Old Salt]

I had two builders in over the years. 25% once materials onsite, 50% at roof height, remaining 25% when job complete and I am happy. Worked for me and as far as I know worked for the builders.

Simple case of give and take and trust on both parties.

 

[IT Minion]

Congratulations you've reinvented escrow.

 

[motorbiking]

The deposit protection scheme has actually been a massive failure. It increased the burden on good landlords, increased costs for tenants and is easily dodged.

The best way to keep your contractor focussed is to structure your payments to trail the value of the work. He gets his profit at the end and you hold enough cash to get someone else to finish the job.

 

[Murdochcat]

My “losses” over the last 15 years total about £500 so I’m happy and that would suggest most of my customers are to.

The key I think is a clear estimate of what I’m doing, leaving less scope for disputes

 

[Notch7]

We've all heard stories of tradesmen taking the money and not finishing the job, or doing a poor job and not coming back to fix it after getting paid.
There's also the other side of the coin where people don't pay tradesmen after they've done all the work required.
How could we resolve this?

The problem with lots of construction work, especially extensions and refurbishment is that the work involves many many elements, the project is often subject to variations and unforeseen problems happen.

It is almost impossible to document every single detail and builders often aren’t very good at paperwork, the result is that there is lots of scope for disagreements and dishonesty from both sides.

The best way to get paid is to get the job done on time and make sure at the beginning and during the process the customer knows when payments are due. And invoice promptly.


Do not vaguely tell the customer you will email the invoice in a few days, tell them in advance when the payment is due otherwise you will get the “oh I’ve got to transfer funds, or wait for granny to die or………”

 

[henry1]

Congratulations you've reinvented escrow.

Yes, that's what it is. I didn't want to use that term as some people may not be familiar with it.

 

[henry1]

OK, consensus is that it's not a great idea then and current system is good enough.

 

[henry1]

The deposit protection scheme has actually been a massive failure. It increased the burden on good landlords, increased costs for tenants and is easily dodged.

The best way to keep your contractor focussed is to structure your payments to trail the value of the work. He gets his profit at the end and you hold enough cash to get someone else to finish the job.

I've been a tenant and landlord and the TDS was great protection as a tenant and didn't cause any hassle as a LL. There are severe penalties for LL dodging it so not worth doing, whether it's easy or not.

 

[motorbiking]

I've been a tenant and landlord and the TDS was great protection as a tenant and didn't cause any hassle as a LL. There are severe penalties for LL dodging it so not worth doing, whether it's easy or not.

Despite the penalties - 1/3rd of LL don't bother, and most just increased rent to cover writing off the deposit. Then there is mandatory insurance, no deposit options, deposit waiver fees, 2 months up front no deposit etc.

 

[henry1]

I think what you mean is not "despite penalties". LL don't ask for a deposit, thus no deposit = no penalties.
However, the increased rent doesn't make too much sense. If rent for a property is at £1k market value, the LL can't ask for £1.5k in rent to make up for the lack of deposit. Tenants will go elsewhere? Maybe they ask for 2 months rent in advance then?
It's a good thing for tenants then not having to put up a large deposit...

 

[motorbiking]

No 1/3rd of LL do not bother securing the deposit, despite the fact that the tenant can win 3 x in penalties. All the LL need do is refund the deposit at the Letter before action stage.
Separately many LL are now charging deposit insurance instead. This is because nobody wants the hassle of dealing with a 3rd party and the 3rd party make bugger all out of the scheme so do a s**t job of arbitration via an offshore "claims" centre.

I've been a LL for over 25 years and when the scheme came in, I switched to first and last and when that was outlawed, I switched to zero with higher rent and then gave a discount for rent credit. You take a risk on a deposit, if the tenant is going to be sh** six weeks rent wont go far. Better to trust them, have a good relationship and no need for a deposit.