The foreclosure cleanup industry is still a relatively new business sector that has come alive in the last three years. Foreclosure cleanup, or REO trashout, involves the cleaning, cleaning, and maintenance of homes that have been foreclosed on. Duties include everything from property debris removal to minor repairs, inspections, home security by boarding up windows and doors and changing locks, to initial and ongoing lawn maintenance, roof repair and plus.

Property Preservation Companies vs. Foreclosure Cleanup Companies

Although the larger property preservation companies, which often work directly with the US Department of Housing and Urban Development (HUD), have been around for years, many of the smaller, less formal foreclosure companies are still in his infancy.

These large property preservation companies get 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 for foreclosure cleanup companies to help them clean, secure and maintain these HUD homes across the country. The number of homes leaking from HUD is in the thousands, especially in today’s turbulent foreclosure-ridden housing market.

Hurdle for Smaller Businesses of Foreclosure Junk

One major hurdle that a smaller foreclosure cleanup company may have to overcome, if unprepared, is unpaid bills from contractors that they are owed for work performed. Here is the gist of how a smaller business can become a victim of unpaid invoices:

A larger company will contact a smaller company and ask them to service a number of homes. The smaller company will perform foreclosure cleanup jobs on terms that may state they will be paid within, typically, 30, 60, 90, or even 120 days. In many scenarios, the larger company that outsources the work to the smaller company will be waiting to be paid by a larger organization, bank, or other financial institution.

In a scenario gone wrong, the smaller company will not be paid on time for jobs completed based on the work order request(s). And that smaller, often new business will have invested time, energy, and money to complete the foreclosure cleanup job. They will have spent energy, time, and money on supplies and labor. The job will be complete, but the small business will not be paid.

More than one job on the books like this can cripple a smaller business’s cash flow and force it to close its doors before they’re fully open.

Ways to Protect Your Trash Business From Foreclosure

But there are ways companies can protect themselves. If you’re a smaller business, here are some tips to keep your small business afloat while competing for outsourcing opportunities with larger companies:

1. Trade, trade, trade. Payment terms are not set in stone. If a company’s policy on receiving payments doesn’t work for your business, don’t accept it. Easy. You can lose that client, but you can’t work for free or wait forever to get paid. Some customers like this and you’ll be out of business before you know it.

two. Get all written. If you have a “verbal” agreement with a company, you are taking a big 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 their agreement, don’t be afraid to scribble down the terms that work for you and cross out the initial terms that don’t. Sure, you can sign your agreement all day long, but read every word and don’t be afraid to add and subtract so you don’t get taken advantage of.

While most real estate professionals are just that, professionals, there are a few piranhas on the prowl, waiting to prey on unsuspecting new business owners.

3. Implement a late payment fee. If you agree to a company’s terms for how long you’ll wait to get paid (30, 60, 90 days or more), implement a high late fee and enforce it if the customer is a day late. Remember, you are growing a business that you want to stay in for a long time. So take a tough stance when it comes to getting your money.

How you start is directly related to how companies will treat you when it comes to paying bills. So be clear, be firm, and if a company doesn’t pay you on time, be LOUD (translation: keep calling until you get paid). The squeaky wheel gets the oil. Remember, get the late fee in writing up front, don’t try to implement one after the fact, and stick to it. Don’t be swayed by your company’s policy when it comes to your money.

NOTE: And there is no rule that you have to wait to get paid. Your terms may be as follows: 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 largest 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 substitutes yourself to see if they were paid on time by this company you are considering working with. If the larger company asks you about this, let them know that it is your “company policy” to check references of new clients.

5. Factor your invoices. Factoring is simply the sale of your company’s invoices for a percentage of the total due so you don’t have to wait to get paid. If a larger contractor owes you $6,200, when you factor, he will sell that $6,200 invoice to a finance (factor) company for a certain percentage of the amount owed. The factor will pay you the $6,200 within days, minus your fee (a percentage of the bill).

When you sign 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 sound prime contractors. If you can’t factor invoices due due to a larger company’s credit, your business will be at a huge disadvantage when it comes to cash flow.

For more information

The above are some simple tips and steps to take to make sure you don’t get burned on bills when you start your business. Find more information about factoring in How to Start a Foreclosure Cleanup Business (Stone Cottage Books). Much success to you with your foreclosure cleanup business.