February 2021 - Page 2 of 2 - Hard Hat Industry Solutions
Electrical Estimating and Contracting – Obtain a Credit Line – (Part III Joint Check Agreement)
February 8, 2021 By Adam Howard
Electrical estimating and contracting. In part 1 you learned that having credit to buy materials helps grow your business.
In part 2 we explore how to obtain a credit line with bad credit.
Joint Check Agreement. An “Agreement” you sign with your distributor that can launch you into bigger jobs.
A Joint Check Agreement is an agreement you sign between you, your supplier and the general contractor you work for. It guarantees your supplier will get paid for materials installed on a job. Long story short, the general contractor makes the check out to the supplier and your company. The supplier deducts how much is owed for materials and cuts you a check for the balance.
Your supplier has the agreement forms.
Often times if you have a joint check agreement with your distributor, they will extend you a higher limit of credit because they have a better guarantee of payment. Ask your distributor about this and how they would want you to proceed with it. Your supplier creates the paperwork. You and your general contractor sign the paperwork.
Example: You have a credit limit of $25,000.00 but you land a job which requires $35,000.00 of materials. You sign a joint check agreement with your distributor and the general contractor for the materials purchased on that job.
Related: Electrical Estimating and Contracting – Obtain a Credit Line if you have challenged credit. Part II
The downside of joint check agreements is it takes longer to get access to your money. The check is not made out to you. Your money has to travel through the account of your distributor then to your account.
The up-side is your distributor will help you fund much bigger jobs that require more money for materials.
So, ask your distributor about their policies for joint check agreements and what they would need from you to set up an agreement. If they give you the green light to do joint check agreements, you can look for bigger jobs.
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Electrical Estimating and Contracting: How to Obtain a Credit Line with Bad Credit. (Part II)
If you have challenged credit, it does not necessarily mean distributors will not grant you credit. They may offer you a low credit limit.
They want and need your business but they also must limit their liability. Often times if you apply for a certain dollar amount of credit, they may refuse it but counter offer you a lower credit limit.
Example: You apply for credit at a national distributor chain like Graybar, WESCO, Rexel or Consolidated Electrical distributors. You request a credit limit of $25,000.00. They reject your application for $25,000.00 but offer you a credit limit of $5,000.00.
What if you have “challenged credit”?
Apply for a low credit limit.
When you apply for credit, the credit application asks how many dollars credit you are applying for. Instead of requesting a credit line for $50,000.00, start out small. Ask for $5,000.00 or $10,000.00 credit. Tell the credit manager you have a low credit score.
Ask them their opinion how much they think you could get approved for with a low credit score. They will tell you how much to apply for, or they will counter offer a lower amount than you requested.
Even if it is only a credit limit of $500.00 or $1,000.00 that is GREAT! They will increase your credit limit as you consistently pay them on time! So that means PAY YOUR SUPPLIERS ON TIME!
Eventually, they will show you some love and bump up your credit limit. If they do not offer you a credit limit increase, ask for an increase after about 6 months.
Apply at smaller “mom and pop” distributors
As opposed to national companies, small distributors may be more inclined to grant you credit. They often have more personal relationships with their clients. You can actually speak to the owner directly and the owner can influence the outcome of granting you credit. In other words, if the owner likes you, they will likely grant you credit.
That is not to say that you do not need to apply at national distributors. You want credit there as well because as you expand your business you will want to have access to their extensive inventory. Apply at different distributors until you have at least 2 credit lines established. Keep going until you have credit set up at 3 or 4.
Your relationship with your electrical supplier is a partnership. In that partnership you find the jobs and execute the jobs and they provide the materials on credit until you get paid for the job and can pay them back.
It is a high value partnership you should guard and nurture and protect, because without it you cannot grow or sustain your business.
To be continued in part III – Electrical Estimating and Contracting: How to Set Up a Joint Check Agreement
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Electrical Estimating and Contracting-Strategy to Grow Your Electrical Contracting Business (2021)
Electrical estimating and contracting tips for growing your electrical contracting business.
What is the main thing that limits how many jobs and what size jobs you can do?
The answer is the amount of credit you have to buy electrical materials.
Example: Say you sell a residential job for $3,500.00 and your material cost is $1,200.00.
Say you have zero credit to buy materials and you must fork out cash to buy all your materials out of pocket. The amount of jobs you could do would hinge on how much cash you could cough up to buy materials. No cash no work.
But if you have $5,000.00 credit at a distributor, you could fund over 4 times as many jobs because of using credit instead of cash to buy materials.
The more credit you have to buy materials, the larger the jobs you can do and the more jobs you can do.
I recommend you establish credit with at least 3 electrical distributors. Also, establish credit with stores like Home Depot or Lowes.
Why three distributors?
Because electrical distributors represent different manufacturers like panel & switchgear manufacturers.
One distributor may represent Square D and another General Electric. If you need a Square D Panel you will need to buy it from a Square D distributor, in order to get the best price.
Example: If you buy a Square D panel from a General Electric distributor, the GE distributor has to go out and buy the panel from a Square D distributor, and you will have to pay double mark-up.
Then, another reason to have credit established at multiple distributors, if you reach your credit limit and they cut you off at one distributor (which they usually do when you reach your credit limit) you are still able to buy materials somewhere else.
Obviously, you must be able to buy materials to stay in business. You do not want to use your cash for materials. You will have plenty of other ways to spend cash. Like on labor or job expenses.
But, you might ask, “What if I have lousy credit?”
To be continued in Part II – Electrical Estimating and Contracting: How to Obtain a Credit Line with Bad Credit. (Part II)
Filed Under: Electrical Estimating Software Tagged With: electrical, Estimating, Red Rhino, Software