How To Reduce The Payment Risk For Work Contracts

2023 Author: Hannah Pearcy | [email protected]. Last modified: 2023-11-26 11:39

In contrast to sales contracts, the principle applies to work contracts: work first, then settle. However, this legally anchored wholesale principle creates a risk of payment defaults for tradesmen, which can quickly ruin small tradesmen in particular. But there are a few instruments that can at least reduce this risk.

Before the contract is signed

Check creditworthiness: Admittedly, credit checks are rather uncommon in the trade. But why not use this tool with new, as yet unknown customers with a higher order volume to get important information about their payment behavior. This is best done before the contract for work is signed. If the information is not positive, various measures can be taken to secure the receivables.

If the credit check provides evidence of fruitless seizures, affidavits (previously an oath of disclosure) or judicial measures, an order should not be issued. Credit agencies are providers of credit information.

Advance payments

Prepayments are payments for services that have not yet been performed (e.g. to pre-finance cost-intensive materials). With this instrument, the principle of advance payment can be at least partially broken. Some tradesmen agree advance payments of 30% to 50% of the expected total order, which are due at the latest when work begins. According to § 16 VOB / B, the client can provide sufficient security from the contractor for the advance payment, e.g. B. in the form of a guarantee.

Installment payments

Advance payments (AZ) are the classic instrument in construction practice in order to minimize the advance payment risk and improve liquidity. In the case of properties with a processing period of several weeks in particular, it is essential to ensure that payment is received continuously. In addition, budget bills have the purpose of exerting pressure on the client by the possibility of discontinuing the work if they are not paid in time or if necessary terminate in order to limit the losses.

Both the requirements for budget bills and the possible consequences of non-payment are now very similar for BGB and VOB contracts. For contracts in accordance with VOB / B, care must be taken to ensure that a verifiable advance payment invoice is issued. A termination of work according to § 16 VOB / B is only possible if the client has been given a reasonable grace period for payment and this has passed unsuccessfully.

Reduce payment risk for work contracts before acceptance

Security deposit in accordance with section 650f of the German Civil Code (BGB): In the case of contracts for work that relate to new production or major repair measures (construction contract in accordance with section 650a of the German Civil Code), the new building workers insurance law in accordance with section 650f of the German Civil Code applies. After that, the contractor can request security in writing up to the amount of the expected, unpaid compensation claim (plus 10% for additional costs) at any time after the construction contract has been concluded. The security can take the form of a guarantee or a promise to pay (surety) from a credit institution or credit insurer. If the client does not provide the security within a reasonable period (usually a period of 7 to 10 working days is sufficient), the contractor can stop the work after the deadline or refuse to start work. The setting of the work should then also be displayed. If the client has not provided the required security on time, the contractor can also terminate the contract instead of stopping work.

Notice of termination should always be given in writing; ideally by registered mail or registered letter of return. The services already provided are billed at the agreed prices. The contractor is entitled to charge a flat rate of 5% of the agreed remuneration for parts of the work not yet performed. Instead, it is also possible to prove all saved costs (wages, material) and deduct them from the contract prices. The main disadvantage for the construction tradesman is the assumption of costs for security of up to 2.0% of the guaranteed amount per year.