Having steady and reliable cash flow is critical for the survival of your Construction Business, so taking steps to make sure your customers pay on time by reducing your debtor days is a key priority.
Debtor days are the length of time it takes clients, on average, to pay you for the work you’ve done. Having a higher number of debtor days means your clients take longer to pay you. A lower number of debtor days means your clients take less time to pay you, which means more cash is available for your business to use.
Debtor days can average as long as almost three months in the construction industry. Shortening that length may have a significant impact on your cash flow.
You’ll avoid the dreaded “feast or famine” cycle when your clients consistently pay on time. You’ll be able to pay your employees, suppliers, vendors on time, and, not least of all, yourself. Additionally, if clients are taking too long to pay you, you may leave money on the table in exchange for collecting anything at all.
Implement these nine tips to get paid without delay.
Provide payment terms upfront
Before starting work for any new client, always provide your terms and conditions in writing. Clearly state your rates, due dates, and your policies regarding late payments, including any fees you’ll charge on any balances owing. Make sure your clients sign the agreement indicating that they are aware of and agree to your terms and conditions. Don’t work with anyone who refuses to sign.
Understand your client’s payment process
Large clients may have a lengthy payment process requiring the verification of invoices. They may receive tens, or even hundreds, of invoices regularly. As a result, their policy may be to pay invoices only on certain days.
If possible, submit your invoices with the client’s payment cycle in mind. If they only pay on the 16 of the month, get your invoice in before that date to get paid this month instead of the following. Make sure your invoices have all the required information so that clients can quickly and efficiently approve your invoice. Make a checklist of all the information to include so they can approve it without coming back to you with questions.
Invoice as soon as possible. If you invoice on completion of a project, make sure your invoice is ready to go so that you can send it off right away. The longer you wait to send an invoice, the longer you’ll wait to be paid.
If you prepare your invoices manually, switch to an online accounting system with automated billing. You’ll never forget to invoice a client and you will be eliminating human errors. You’ll also see when the invoice was sent, who it was sent to, and when they viewed the invoice.
Follow up on invoices
A good idea is to send an invoice reminder before payment is due. People sometimes forget about their invoices, or invoices get misplaced, and a simple reminder can go a long way to helping clients remember.
Immediately call your customers when a payment is overdue. Ask for the invoice status and if you can do anything to speed up payment. Like including a purchase order number on the invoice, simple changes can speed up processing times.
Reward early payers
Consider offering clients a 2% discount when they pay their invoice within the first ten days. In this scenario, a $2,000 invoice would be reduced to $1,960, not a massive loss for you, but it is an attractive cash-saving incentive for your customers, which may be worth it if it frees up cash for your business.
In your terms, specify that if a client’s payment is past its due date, a weekly fee of 2% will be added to the total until full funds are received. If the client goes past the due date, you should charge them interest.
Get paid upfront
Collect a partial deposit, or the entire amount, before you begin a project.
Stop supplying your clients with your products or services until you receive payment. Doing this will avoid accumulating an even more significant loss with a consistently late or non-paying client.
Stay on top of who owes you
Keep track weekly of who owes you money and the amount so you can act fast if a customer hasn’t paid on time.
Perhaps the most crucial tip for encouraging fast payment is having excellent communication. Make sure your terms are clear and ensure you send out your invoices promptly.
When following up on an overdue invoice, ask when payment can be expected and agree on a set date.
If the money still isn’t forthcoming, consider legal options. You may not want to resort to taking legal action, but it’s essential to send a message to that unpaying client and others that you will take the necessary steps to ensure payment.
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