Builder accounts pay kitchen bath salesI hate situations like this and I’m starting to hear stories of cabinet dealers facing it more and more frequently. Here’s what happens: you work to get a builder’s business for years and finally win it – you get a shot at a new sub-division going up. You have some great designs and a sharp pencil. You win the business and do the first couple of houses. Everything is great. Then it happens, or should I say it doesn’t happen?

The payments that began so prompt are starting to get more and more late. The builder is happy with your work, other than the microscopic mark in the cabinet door he tells you about, almost trying to justify a late payment because it hasn’t been touched up yet. You get paid, but it’s just a little late and getting later with each new house. It seems like a difficult topic and you need the business- so why say anything?

After a while you start having some cash flow challenges and look at a list of people who owe you money. This is the first time you realize your coveted builder owes you over $75,000. What do you do now? What should you have done before?

What I want to share with you are a couple of ideas that should help you if you are facing this situation now, and help you avoid it in the future.

Step One

In the previous market, many were scared to ask builders for too much information. We were just “lucky to get the business”. Those days are gone. Now you need to have a standard “new customer” packet that you have all new customers complete. Ask for detailed financial information including major creditors, names of banks and bank account numbers and a release allowing you to confirm the information is accurate. The credit application should also include a provision that in the event a lawsuit is required to collect any debt, the creditor will also be able to collect legal fees and cost of collection. It is also good practice to ask for a personal guarantee, depending on the size of the company. A credit application with their credit policies and trade terms documented will help you tremendously if trouble occurs later.

Step Two

Begin your collection process early. If your invoice is due in 30 days; have an administrative person place a pleasant call to your builders accounts payable department and inquire about when your invoice is scheduled for payment. If the check has already been issued, great. If not, you’ll either have a date the check will be cut or a clear indication that your check is being held. Either piece of information is better to know now rather than later. A receivable is just like a perishable fruit. It’s most valuable when you get it on its due date. The older it gets, the less its worth. A little known fact is the secret of 60. The secret of 60 is that the more a receivable gets past 60 days, the more unlikely it is that you will ever collect it. The truth is that once a builder falls behind in payments, they generally fall further behind until someone is never paid. Your goal is to make sure that you always get paid.

Step Three

Once the invoice is thirty days past due send a letter with a firm tone asking for the invoice to be paid. A telephone follow-up call also should occur. The topics of the conversation are that the bill is past due and that you would like to receive payment. If required, explain that you have a strict collections policy and that you refer people to collections when they are 60 days past due.

Step Four

When a person reaches 60 days past due send them a demand letter. A demand letter indicates a deadline for payment and the total amount due. Ask for them to contact you if they cannot immediately pay the debt and you will arrange a payment plan. The letter should also state that legal action will be taken to collect the debt if it is not received by the due date.

Step Five

Always have payment plans in writing. It is easy to be in agreement on the phone but in disagreement in the future when a check is due and you and the builder remember differently. This is probably the biggest point of frustration in business. You feel like you did everything right, were patient and you still can’t win. Write down the installment plan in the form of a memo, send it to the builder and hold the builder to it.

Step Six

At sixty days past due have your attorney send the builder a letter. Review the desired payment time line, amount due and state that you will take legal action to collect the debt. Also indicate that this letter is the final warning before a lawsuit is filed and no further letters will be sent before the lawsuit is filed.

Step Seven

File a lawsuit. Depending on the amount of the debt and the state which you live in, you can either file a claim in superior court or small claims court. Small claims court filing fees are low, attorneys are not allowed and the disputes are settled within a couple of months. One challenge of small claims court is that a creditor (you in this case) cannot appeal the decision. With that fact in mind, be prepared to choose the small claims court route.

Superior court will only make sense for larger debts. The debtor is served with a court summons and complaint and will have 30 days to file an answer. Unless the builder contests the validity of the debt, most collection claims proceed quickly either to settlement or judgment.


Remember the phrase “the squeaky wheel gets the grease”? Well, this is the time you want to be the squeaky wheel. It’s your money at stake. Most builders will pay you rather than endure this process. It creates stress and hassles for them and they will most likely decide it is easier to pay you rather than live through all these hassles — especially when their other creditors aren’t following this process.

A common question I always get is, “Doesn’t this scare some business away?”

And I always answer the same way: “Why yes it does. It scares off the kind of business you never wanted anyway!”Request an Equilibrium Demo