Are you a construction contractor waiting for money?
Late payments are every contractor’s nightmare. Late payments disrupt cash-flow and result in the contractor being unable to pay their suppliers, subcontractors and even employees. This could result in the loss of payment discounts (so items cost more) and stricter payment terms with suppliers in the future, which could mean that suppliers require earlier payment or even payment in advance, which negatively impacts the contractor’s cash-flow further. Of course non-payment of suppliers, subcontractors and employees disrupts work on construction projects resulting in delays, and it creates mistrust between the parties impacted. Nobody wants to have to wait for their money.
What contractors must do to ensure they are paid on time
It’s essential that contractors ensure they are paid on time. This can be achieved by implementing the following:
- The terms and conditions in the contract document must be clear to all parties. What can be claimed and when can it be claimed? When is payment due? The client must know when payment is due.
- Contractors must submit claims and invoices on time.
- Invoices must be clear and include all required supporting documentation. Clients often make excuse for non-payment, blaming missing documentation, mistakes on the invoice, faulty workmanship, and more. Mistakes on invoices will delay payments.
- Invoices should clearly show the payment instructions. When is payment due and how should payments be made?
- Know when payments are due and a few days in advance remind clients that payment is due. Check that there aren’t problems with the invoice and that the full amount will be paid.
- Provide good service. Happy customers are more likely to pay on time. Unhappy customers will deduct monies from invoices, look for excuses not to pay, or deliberately drag out payment.
- Follow up immediately when payment is late. A simple phone call a day after payment is due may be all that’s required to get a customer to pay. Often non-payment is simply an oversight, forgetfulness, a clerical error, or a person being sick or on leave.
- Don’t rely on verbal responses, so send out a written notice of late payment within 7 days of the invoice not being paid.
- Stay professional with all your communication. Be firm and persistent, but always remain polite and friendly. Make it clear that no matter the excuse late payment is not acceptable and it’s causing problems.
- Understand why payment hasn’t been made. If the client is running into financial problems research to find out the extent of the problems. Is it just a small hiccup caused by non-payment to them, or is it more serious, possibly the company going into bankruptcy. Talk to your client to see if you can formulate a resolution. It’s important that verbal agreements are followed up in writing so there are no misunderstandings. If the client is in serious financial trouble understand what can be done in terms of the contract to protect your company from further losses. Terminating a contract has to follow strict procedures. Terminating the contract for the wrong reasons puts the contractor in breach of the contract and will jeopardize further payments, even opening the contractor to being sued for damages from the client. Don’t assume that late payment is reason enough to terminate the contract.
- Follow the legal route for non-payment as stipulated in the contract document. Get expert advice when required. Understand the costs of litigating against the client since success isn’t always guaranteed. Reaching a solution often takes time and it can be very expensive.
- Pick your clients with care. Some clients have a reputation for paying contractors late, or making spurious deductions from their contractor’s invoices. Contractors should research their clients and ensure that they have the funds to pay for the work.
- Offering a small discount for early payments costs money but it often results in clients paying invoices on time.
- The contractor’s senior management must ensure that employees are aware of how critical it is to ensure that invoices are sent out on time and that payments are received when they are due. Management should be advised when payments are late. Late payments may have a big impact on the company’s operations.
- Contractor’s shouldn’t be fooled into being nice and regularly accepting late payments in the belief that the client will award them further work. The contract document is there to protect both the contractor and the client and no company should take offence to their contractors demanding to be paid on time in accordance with the contract. Clients that regularly pay their contractors late will often take advantage of their contractors in other ways.
It’s critical contractors are paid on time
Late payments and non-payment is probably the biggest cause of construction contractors going bankrupt. Being paid on time is critical to every business. It’s critical to claim all completed work in accordance with the construction contract and submit invoices on time. Ensure that payments are received and follow up late payments immediately. Regrettably many construction contractors don’t get the basics of invoicing and getting paid right. No company can afford to work for free.
How do you ensure that you are paid on time? Do late payments impact your business?
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Paul Netscher is the author of several popular construction books:
- ‘Successful Construction Project Management: The Practical Guide’
- ‘Building a Successful Construction Company: The Practical Guide’
- ‘Construction Claims: A Short Guide for Contractors’
- ‘Construction Project Management: Tips and Insights’.
‘Construction Management: From Project Concept to completion’ is for project owners/clients and client side project managers.
Paul’s new book is ‘The Successful Construction Supervisor and Foreman’
Title image courtesy of TAW4 at FreeDigitalPhotos.net
Dollar squeeze image courtesy of renjith krishnan at FreeDigitalPhotos.net
© 2019 This article is not to be reproduced for commercial purposes without written permission from the author.
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