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How to Get Paid Faster

05/15/24

The construction business used to be easy. 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 don’t provide enough money to handle every change order, upgrade, or unforeseen field conflict.

Be Firm but Fair

Collecting 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, or required signatures on contracts and change orders. When asked what their biggest challenge is, contractors often say: “Getting paid.” Yet, they often don’t stop work or place liens on projects when they aren’t getting paid because they don’t want to jeopardize relationships with customers. They also continue to do repeat work for these same customers who don’t pay on time.

Train Your Customers

As a general contractor, you have to learn to train your customers. If you are tough, you will get more respect and be paid faster. If you are soft, you will be overlooked and have to wait for your money. Tough contractors never do extra work without signed change orders, and they always place liens on projects when they don’t get paid. They usually get paid first and their change orders get signed before others. Train your customers by teaching them how you want them to do business.

Rules to Get Paid Faster

Rule #1: You can collect only 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.

Rule #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.

Rule #3: You can only collect if you bill according to your contract.

Experience shows that half of the invoices that 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 from suppliers and subcontractors.

Checklist for Faster Payment

  1. Always send preliminary lien notices.
  2. Your invoices must include all of the required paperwork, cost breakdowns, and lien releases.
  3. Never bill for unexecuted or unapproved change orders as part of a progress payment request.
  4. 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.
  5. Make collecting money your follow-up and be persistent. Have a mandatory Monday morning meeting to review every receivable and make actions plans for delinquent accounts.
  6. Call or visit slow-paying customers at least once a week to check on unpaid invoices. And, make sure you are talking to the right person.
  7. 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, send a copy of the warning to the project owner or lender.
  8. Never give up your lien rights, and always file a lien when you don’t get paid per the contract.
  9. 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 will expedite payments.

Suggestions for Getting Paid Faster

Even if you bill according to the contract, your customer has the money, and they execute 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, or 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 pay, if agreed to in your contract.

You Are in Business to Make a Profit

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. Train your customers by insisting on prompt payment. Do more than design, bid, build & bill. COLLECT!

Business - Commercial Construction Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.