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6 Proactive Tips to Get Paid Quicker in Construction

Posted by Concannon Miller on Tue, Jun 8, 2021

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6 Proactive Tips to Get Paid Quicker in ConstructionOne of the greatest challenges of running a construction company is getting paid in a timely manner. Waiting on unpaid invoices can put a serious dent in your cash flow — not to mention increase stress in an already stressful job.

But it's possible to put processes in place or fine-tune your existing ones to facilitate prompt remittance. Consider the following six tips:

Clearly Define Payment Schedules

When negotiating and drafting contracts, clearly communicate payment due dates and amounts, explain how and where to submit payments, and disclose penalties for late payments. Payment schedules usually are set according to project milestones or on agreed-upon dates.

Your contract also should establish a clear process for change orders and approvals that allows you to bill for them as soon as possible. And, when drafting subcontracts, insert pay-when-paid clauses that enable you to pay your vendors and subs only after you receive payment from your customers.

Send Timely Invoices

If you don't bill on time, you don't get paid on time! Follow the invoice schedule outlined in your contract and, if you don't receive payment according to the contract's terms, regularly follow up with customers until you do. Your invoices should be detailed and include all supporting documentation showing proof of work.

If you aren't already using an automated solution, consider acquiring accounting management software. This is one of the best ways to ensure accurate invoices are sent out in a timely manner each month. You also can use automated systems to set up reminders to bill clients, notify clients of pending payment amounts and due dates, and follow up on past-due invoices.

READ MORE: 9 Strategies to Boost Cash Flow in Construction

Offer Early Payment Incentives

New Call-to-actionAnother strategy worth considering is to offer incentives, such as small discounts, to clients for making payments before their due dates. Make sure these offers are clearly noted on invoices so they aren't overlooked. On the flip side, building in late fees or interest charges for past-due amounts may give customers an incentive to not make late payments.

Make It Easy to Pay

If you haven't done so already, set up your business to accept electronic payments. Although some clients may still pay bills by mailed check, most others likely take advantage of electronic payment processing methods. Your company stands to benefit from being flexible and accommodating to clients by offering them different ways to pay.

For example, you might offer payment via wire transfer, credit card and online payment systems such as PayPal. Allowing clients to pay electronically helps expedite payments while giving them more time to meet due dates.

READ MORE: Construction: 8 Accounting Practices to Boost Your Bottom Line

Process Change Orders Quickly

Don't drag your feet about processing change orders. Prepare them immediately to get swift approval. Then you can bill for additional costs as they come in. Additionally, turn in project closeout documents promptly so you can receive final payments sooner.

Send Preliminary Notices

A preliminary notice (also known as a notice to owner or NTO) notifies the project owner of an upcoming bill and your right to file a mechanic's lien for nonpayment. Issuing one can encourage customers to prioritize your invoice. In fact, sending a preliminary notice is among the first steps you must take to secure your right to file a lien claiming a property because of unpaid work. Another benefit? These notices state your intent to give up your lien rights in exchange for payment.

This waiver differs from an unconditional waiver, which becomes effective as soon as you sign it. Be careful about signing unconditional waivers, as they may force you to give up your lien rights before receiving payment.

Taking a proactive approach to invoicing is a much better alternative to chasing down late payments. Clearly communicate your payment expectations, bill promptly, offer flexible payment options and send regular reminders. Contact us for more information on keeping cash flow healthy.

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Topics: Construction & Real Estate Development

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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