The foreclosure cleaning industry remains a relatively new business sector that has come to life in the last three years. Cleaning up foreclosures, or REO trash, involves tidying up, cleaning, and maintaining homes that have been foreclosed upon. Duties involve everything from removing debris from properties, to minor repairs, inspections, securing homes by fitting windows and doors and changing locks, to initial and ongoing lawn maintenance, roof repair, and more.
Property preservation companies vs. Foreclosure Cleaning Companies
Although the larger property preservation companies, often working directly with the U.S. Department of Housing and Urban Development (HUD), have been around for years, many of the smaller and less formal garbage disposal companies are still in its infancy.
These larger property preservation companies obtain most of their work from HUD, through the organization’s management and marketing contractors (“M&M contractors”), who maintain and sell HUD-owned homes.
Property preservation companies are looking to foreclosure cleaning companies to help clean, insure, and maintain these HUD homes across the country. The number of homes coming from HUD is in the thousands, especially in today’s turbulent foreclosure-ravaged housing market.
Barrier to Smaller Foreclosure Trashout Businesses
A major hurdle that a smaller foreclosure cleaning company may have to overcome, if not prepared, is unpaid bills from contractors who owe them for work performed. Here’s the gist of how a smaller business can become a victim of unpaid bills:
A larger company will contact a smaller company and ask them to service multiple households. The smaller company will perform the foreclosure cleanup jobs under terms that may indicate they will be paid within typically 30, 60, 90, or even 120 days. In many scenarios, the larger company that outsources work to the smaller company will be waiting to receive payment from a larger organization, bank, or other financial institution.
In a bad scenario, the smaller business will not be paid on time for completed jobs based on work order requests. And that smaller, often new business will have spent time, energy, and money completing the foreclosure cleanup job. They will have spent energy, time and money on supplies and labor. The work will be complete, but the small business will not have been paid.
More than one job on the books like this can cripple a smaller company’s cash flow and force it to close its doors before they’re solidly open.
Ways to Protect Your Business From Foreclosure Trashout
But there are ways that businesses can protect themselves through foreclosure. If you are a smaller business, here are some tips to keep your small business afloat while competing for outsourcing opportunities with larger companies:
1. Negotiate, negotiate, negotiate. The payment terms are not set in stone. If a company’s policy of getting paid doesn’t work for your business, don’t accept it. Simple. You can lose that customer, but you can’t work for free or wait forever to get paid. Some clients like this one and you’ll be out of business before you know it.
2. Get everything written. If you have a “verbal” agreement with a company, you take a great risk by working for free. Document your terms in writing. This documentation can be through a formal contract or through a handwritten agreement that you prepare on site. If a company asks you to sign your agreement, don’t be afraid to scribble the terms that follow and cross out the initial terms that don’t. Sure, you can sign your agreement throughout the day, but read every word and don’t be embarrassed to add and subtract items so you don’t get taken advantage of.
Although most real estate professionals are just that, professionals, you have a few piranhas lurking, waiting to prey on unsuspecting new business owners.
3. Implement a late fee. If you agree to a business’s terms as to how long to wait for payment (30, 60, 90 days or more), implement a substantial late fee and stick with it if the customer is even a day late. Remember, you are growing a business that you want to be around for a long time. So take a tough stand when it comes to getting your money.
How you start is directly related to how companies will treat you when paying bills. So be clear, firm, and if a company doesn’t pay you on time, be LOUD (translation: keep calling until you get paid). The squeaky wheel receives the oil. Remember, get the late fee in writing up front, don’t try to implement one after the fact, and stick with it. Don’t be ambiguous about your company’s policy when it comes to your money.
NOTE: And there is no rule that you should wait to get paid. Your terms can be the following: Payment due upon completion of work.
Four. Check the references of the company looking to hire you. Yes; That’s how it is. Check the references of the larger company. Ask them for the contact information of no fewer than three subcontractors they have worked with in the last six months. You call these subscribers yourself to see if the company you are considering working with paid them on time. If the larger company asks you about this, let them know that it is your “company policy” to check for new customer references.
5. Factor your invoices. Factoring is simply selling your business invoices for a percentage of the total owed so you don’t have to wait to get paid. If a larger contractor owes you $ 6,200, when you factor, they will sell that $ 6,200 invoice to a finance company (factor) for a certain percentage of the amount owed. The factor will pay you the $ 6,200 in a matter of days, minus your fee (a percentage of the bill).
When you sign up with a factor, the larger contractors you are considering doing business with will be credit checked; not your business credit. This is yet another reason why you want to make sure you work with financially strong prime contractors. If you are unable to factor in the invoices due due to the credit of a larger company, your business will be at a great disadvantage when it comes to cash flow.
For more information
The above are some simple tips and steps you should take to make sure you don’t burn out on bills when you start your business. Find more information on factoring in How to Start a Foreclosure Cleaning Business (Stone Cottage Books). Much success to you with your foreclosure cleaning business.