As different as every construction or field service business is, there’s one thing most can relate to: the frustrations of late client payments. In fact, one study that surveyed 1,300 contractors found that 88% of tradesmen typically wait over 30 days to get paid for a job. On top of that, 46% of those same contractors have had to draw on their own personal savings or business accounts to cover overhead costs and other necessary expenses.
While some reasons for the lag in payments are out of a contractor’s control, there are specific steps you can take to ensure faster, more reliable payment from clients. Here are five places to start.
1. Send notices (NTOs) to clients.
An NTO (“notice to owner”) is a written note that officially advises clients or stakeholders of an upcoming bill—and states that you as a contractor have the right to file a mechanic’s lien in the event of nonpayment. By sending such a preliminary notice, you increase the chances of being paid on time not only by reminding the client of an upcoming balance due, but also because accounting and finance departments typically prioritize invoices with an accompanying NTO over those without them. This will also ensure the client or GC knows you mean business when it comes to being paid on time. Lastly, sending NTOs will also make your company come off as more professional and put together than you would if your invoices followed a more haphazard process.
One often overlooked tip for getting faster payments is to provide an incentive for clients to pay on time.
2. Incentivize fast payment with a discounted rate.
One often overlooked tip for getting faster payments is to provide an incentive for clients to pay on time. By offering a small discount for early payment, whether that’s 10% off the bill or some other benefit, you could potentially head off the problem of checks taking months to arrive and clear. This would also let clients and GCs know that your company values on-time payments, and doesn’t take late checks lightly, without rubbing them the wrong way.
3. Be organized in your invoices.
One surefire way to streamline payments is to make sure your invoices are extremely organized and easily digestible. If any holes or loose ends exist in your invoices, it’s likely the client’s accounting team will see that as a valid reason to delay payment. For starters, be sure your terms and conditions for rework and variation claims are crystal clear—this will make it much easier to calculate exactly how much you should be charging for any particular project.
As a best practice in keeping your bases covered, be sure all invoices feature the following items:
- The client’s name and address
- Your company’s name and address
- The date of the invoice
- Payment terms
- A brief description of the completed work, item by item
- The quantities or prices of materials/units used to finish the project
If you need to include labor data in your invoices, you can count on collecting it accurately when you invest in time tracking software like ExakTime. By knowing exactly when and where your workers were at all times across a project’s sites, you’ll be able to show and report to your GC or client on the amount of time and effort the project took to complete. ExakTime’s software also includes 40+ robust reports on everything from employees’s locations to executive summaries of job sites. With ExakTime, you can provide all of this data to clients and higher-ups inside tidy, actionable reports so none of their questions will go unanswered.
4. Communicate clearly.
Communication is key to any business relationship or transaction, and getting paid is no different. Early on, be sure to clearly communicate the payment policies you have in place at your organization. If the client or GC knows your company takes on-time payments very seriously and goes the extra mile to ensure checks are sent to them in a timely manner, they’ll be more likely to abide by those policies. If you don’t, the client could misinterpret your lack of communication as indifference about the issue, making your company’s payments less of a priority.
5. As a last resort, take out a loan.
Your business expenses can’t wait on delayed payments. Overhead costs, ongoing payroll and equipment costs, and other day-to-day expenses will continue to pile up as you wait for the other foot to fall. If you find yourself between a rock and a hard place because of late payments, taking out an emergency loan can be your last resort. Third party lending tools like Kabbage or even standard banks can help ease the financial load in the meantime in the form of a point of sale loan or another.