Chapter Corner

How To Get Paid Faster!

Posted in: Management Methods, March 2013

The construction business used to be easier. All you had to do was design, bid, build and bill. Submitting bids that were clear, complete, and competitive would get you more jobs. Doing high quality work, according to the plans and on-time, kept customers happy. And when you submitted bills in a timely manner, you always got paid. But what happened?

Now, it sometimes takes 90 days or longer to get paid and often six months or more for the final retention payment. Clients run out of money before projects are finished and construction loans often do not provide enough money to handle every change order, upgrade, or unforeseen field conflict.

Insights_PAID.gifCollecting money owed to you by customers takes time, determination, and effort. Most contractors have too much faith in their customers and are optimistic about getting paid without proper paperwork and required signatures on contracts. When I ask contractors what their biggest challenge is, they often say, "Getting paid," yet they often do not stop work or place liens on projects when they are not getting paid, out of fear of jeopardizing relationships with customers. They also continue to do repeat work for these same customers who don't pay on time.

As a general contractor, I have learned you can train your customers. If you are tough, you get more respect and paid faster. If you are soft, you get overlooked and have to wait for your money. The key is to strike a balance and instill good practices to ensure you get paid on time.

Rules To Get Paid Faster

  1. You can only collect if your customer has the money. Always verify your customer has enough money to pay you. Before starting a project or doing extra work, insist on reviewing the loan documents or calling the banker to verify funding.
  2. You can only collect if you are owed the money. Before doing any extra work, get your customer's approval and signature for it. Never do work without proper approvals.
  3. You can only collect if you bill according to your contract. Experience shows that half of invoices contractors submit are rejected the first time because they were not prepared according to contract terms. Always invoice on time, use the right billing format, and include all of the required lien releases for suppliers and subcontractors.

Checklist for Faster Payment

  • Always send preliminary lien notices.
  • Your invoices must include all the required paperwork, cost breakdowns, and lien releases.
  • Never bill for unexecuted or unapproved change orders as part of a progress payment request.
  • Submit separate invoices for change orders not yet executed. Customers often pay for small change orders on a separate invoice with a clear and detailed cost breakdown of the work done.
  • Make collecting money your priority. Follow-up and be persistent. Have a mandatory Monday morning meeting to review every receivable and make action plans for delinquent accounts.
  • Call or visit slow paying customers at least every seven days to check on unpaid invoices. Make sure you are talking to the right person.
  • Notify customers of your intent to stop work and/or file a lien unless paid per the contract. Send or fax your notice as soon as your money is overdue. A friendly 10 day written warning will get the customer's attention and oftentimes get immediate payment. Also end a copy of the warning to the project owner or lender.
  • Never give up your lien rights and always file a lien when you don't get paid per the contract.
  • Always file lawsuits quickly to collect on unpaid invoices and liens. Be prepared to start legal proceedings within 30 days after filing to speed up the collection process. Usually this action alone will expedite payments.

Even if you bill according to the contract, your customer has the money and executes all the necessary approvals, you may still not get paid as fast as you want. Try offering a three percent discount to get paid in full within 10 days without retention. You can make special deals like faster completion or reduced prices in exchange for better payment terms. Some contractors specify no retention, payments every seven days, payments in advance, a five percent penalty if not paid within 10 days, or payment up front for materials. You can also charge interest or late fees for slow payment if agreed to in your contract.  

It is impossible to build a business without getting paid. When you don't get paid on-time, doing good work won't keep your doors open. Do more than design, bid, build, and bill ... collect.

George Hedley is a licensed business coach, popular speaker and best-selling author of The Business Success Blueprint For Contractors available at www.hardhatpresentations.com. He works with contractors to help them grow and make more money. Contact him at gh@hardhatpresentations.com.