The lack of timely payments is a pervasive challenge in construction. While contractors are experts of building, many are not adept at collecting. Additionally, some don’t feel comfortable putting payment terms in contracts. Given the large amount of cash often involved in construction-related projects, though, it is important to receive payment as soon as possible upon the completion of jobs.
Jim Boyce of Rhino Concrete in Pittsford, N.Y., has experienced the problem firsthand and asks the following question:
What is the best way to collect payment when a project is completed?
GreatAmerica Financial Services
“When you provide an itemized invoice showing both the bid cost and actual completion for timely payment, disputes, if any, are quickly resolved. Print the terms on the invoice as net 15, net 30 or upon receipt. Once the invoice is received, follow up with accounting to see if there are questions and when checks are processed. If the deadline for payment passes, follow up with a customer service-type call explaining that their open invoice is still outstanding and that you would appreciate knowing when the check will be processed. Pay a personal visit, if necessary, to obtain your funds. If the account reaches 60 days past due, have your legal counsel send a demand letter outlining your expectation for payment and the action you’ll take to protect your business interests if they fail to act. ”
“Every paycheck to your company is dinged five to 10 points to fund a mechanism that makes you beholden to 100-percent completion of the project. Five to ten percent of a contract dollar is typically in excess of net margin in today’s markets. Collecting these monies is essential. However, converting retention to cash is not a foregone conclusion. In fact, the last account receivable on a project is often the most difficult to collect. The best way to collect final payment is to be proactive in managing the closeout phase.
"As a project draws to a close, your focus and resources have probably already shifted to the next job. Call timeout at 85- to 90-percent complete, and organize a meeting with your project team to hash out an exit strategy. The outcome of this meeting should be an action plan, outlining all the activities and responsibilities necessary to complete the job. You cannot over-manage the last 10 to 15 percent of a project. Use your exit strategy to drive the project over the finish line and deliver a complete product for which you can collect retention.”
Contractors Debt Recovery
“I think that although undoubtedly many clients are being unlawful in the manner in which payment is withheld, too many contractors make it far too easy. In our experience, those contractors who demonstrate that they understand their contract and document things properly may not avoid payment issues but are usually fighting over smaller amounts and usually get paid rather than ignored. To some extent, contractors can mitigate this issue. Most of our clients do nothing for up to six months waiting for payment before doing anything about it. You can start by tackling the problem sooner.”