Although many self builders come from within the building industry, or are connected with it in some way, the vast majority are entering a totally new world. Not only do they have to learn a bewildering new vocabulary but they also find themselves in the position of chief buyer and paymaster, ostensibly the boss of their venture, dealing with a whole range of people and companies who are far more experienced in this field than they are.

For many self builders, the experience of self building means that, for the first time in their lives, they are in charge of the purse strings and responsible for amounts of money that far exceed their normal experience and far outstrip their annual salaries. If you pay too much or you pay for things that you shouldn’t be paying for, there’s little or no mechanism to get it back.

So what advice can the self builder take away to ensure they don’t cough up for undelivered goods? Read on to find out.

When to Pay

Most things for your self build, be it professional services, labour or plant hire will not be paid in full up front. However, some things may require a deposit, then payments will be staged throughout the works.

Professionals
Most architects and designers will 
agree a schedule of payments linked to a stage in their agreed work programme. For example:

  • A fee for the initial design.
  • A fee for the preparation and submission for planning consent.
  • A fee for the preparation of drawings and submission for Building Regulations.
  • A fee for any work they do for putting the job out to tender and fee for any site supervision.

They won’t like it, but there should be a cut off point at any of these stages if you feel that they’ve done enough for you. Other professionals such as surveyors and those that might be called upon to provide you with reports will require payment on completion of their work.

Local Authority and Warranty Fees and Payments for Utilities and Services
The bills or demands for these should be paid for as quickly as possible in order to get things running.

Builders
Never pay up front! There’s no reason for it. They don’t pay their labour in advance and they get credit from their suppliers. If they can’t, then there’s something wrong. If their pleading seems plausible stand back and consider whether you were paid in advance when you started your job.

Instead, agree a schedule of payments linked to specific stages in the build and stick to them. In certain circumstances it might, perhaps, be better for you to purchase special or non standard items where no credit is being offered.

Pay promptly against a written invoice. Be very careful not to pay VAT on work, such as new build, where it is not applicable. If a reduced rate of VAT is appropriate make sure that this is understood at the outset.

Plant Hire
Most plant hire companies will want a deposit and will then charge on a monthly basis. One off items, such as concrete pumps, which are often owned and operated privately, will often only come for cash on the day or a cheque in advance.

Materials
These days builders merchants are more than happy to have a self builder’s business. Opening a normal trade account means supplying a bank statement plus at least two trade references, the latter of which, a self builder may struggle to provide. But the merchants are pragmatic and most are happy to open a self build account on the basis of a bank account plus proof of ownership etc., with an opening credit limit of £5000.

That may sound a lot to the first time self builder but it’ll soon get swallowed up and, therefore, depending on the situation, most companies will move to extend the line of credit at the earliest opportunity. A credit line of at least £15,000 but, preferably £25,000, is workable and the self builder might consider achieving this by opening accounts with more than one merchant.

Payments are made against a statement at the end of the month following the month of invoice. Which provides adequate proof as to why there’s no need to pay builders up front.

It often pays to buy concrete through the merchant as, otherwise, the batching company will want either cash or a cleared cheque in advance. And with the final amounts uncertain, that can cause problems.

What to do if a Supplier Goes Bust?

It’s an unfortunate fact that, every year, companies working within the self build industry go bust.

The amount paid to many of these companies can be close on half of the total building cost and it is, therefore, imperative that this money isn’t put at risk. On the other hand, to expect any company to manufacture, what amounts to a bespoke home, without guaranteed payment, is unrealistic.

So how to square this circle? Simple. Only pay large sums into a client or escrow account. This is a means, whereby, the money is held in the account until an agreed point, normally delivery of the item, and is kept separate from the business account of the company. There may be third party trustees. Directors of the company may be trustees themselves. But there is no comingling with the company’s normal business accounts and any money in the client/escrow account is safe from any company insolvency.

It doesn’t cost a company anything to set up such an account and there shouldn’t therefore be any charge to their customer. Any interest paid on the account is normally kept by the company but, if the deposit is to be held for a long time, then the company could come to a different arrangement or set up a dedicated customer account.

Many companies working in the industry already have these arrangements, which should be checked out prior to payment. If a company doesn’t have such an arrangement, consider going elsewhere or ask if the money can be held by a ‘stakeholder’ such as a solicitor.

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