Is your client a cash-paying client?
June 03, 2020
Have you been in a contracting situation where a client was paying ‘cash’ from their own line of credit and does not require a bank loan?
HIA’s contracts provide two ways you can protect yourselves in these circumstances. There is the builder’s right to request evidence of the owner’s capacity to pay the contract price and the use of a security account.
What is sufficient ‘evidence’ of the owner’s capacity to pay?
HIA’s residential contracts require the owner provide the builder with evidence of their capacity to pay the contract price. You can request this evidence at any time throughout the build. If the owner fails to provide such evidence, they may be in substantial breach of the contract.
Evidence which would be sufficient to indicate a cash-paying owner’s capacity to pay the contract price would include a bank statement, trust account statement or something else that satisfies you, as the builder, that the client has the money for the job. It is advisable that you request such evidence at the start of each progress stage to ensure that your cash paying client has sufficient funds available to cover the next leg of the build.
What is a security account and when should I use one?
If you have a cash paying client, it is always open to you to request the use of a security account. HIA’s QC1, QC2 and QC3 contracts require an owner, at the builder’s request, to deposit an amount equal to the contract price into a security account. The account is used to provide you with some security of payment as cheaply and easily as possible.
The key features of such an account are:
- The owner chooses the type of account and the institution where the account is to be held (subject to your approval)
- The account is held in the joint names of you and the owner and each of you is a co-signatory to the account
- Withdrawals can only take place if both you and the owner sign the relevant documentation
The security account can be amended by mutual agreement of the parties.
What are the alternatives to a security account?
If a cash paying owner refuses to agree to a security account there are other options to protect a builders’ interests. You may suggest the following alternatives:
- Trust Account: usually this is done through an owner’s solicitor’s trust account. The owner may not receive interest; or
- Have regular and frequent progress payments. There is no limit to the number of progress payments you can have (so long as you are not claiming in advance of work being done onsite). By having more regular progress payments throughout the job, combined with the builder’s ability to request evidence of capacity to pay, the risk to a builder’s business from a non-paying client is reduced substantially.
- Deed of Guarantee and Indemnity: This should especially be used if the client is an incorporated entity. For example, having one of the directors go guarantor for the owner (if the owner is a company) provide an additional recourse should the client go into administration.
For more information on dealing with cash paying clients please contact your HIA Workplace Adviser on 1300 650 620 or email email@example.com