Is your company waiting for income from projects that you have already completed? You aren’t alone, according to Fundbox, a factoring firm that performed a survey stated, “Clients owe $825 billion in unpaid invoices to small businesses alone.” That works out to be $84,000 per small business for products and services given, with no pay received.
Construction companies need to do things in advance to make sure that payment will be received in a timely manner: Being properly prepared, having a good relationship with your clients, using construction software that produces accurate invoicing and have the invoices easy to understand for your clients.
If your company is in the position to do so, vetting clients beforehand based on their credit rating and record of paying on time is a good idea. If this isn’t something your company can do, another option is to ask for a retainer or a deposit before starting the project, or making adjustments during the project. Rather than look at a retainer as a negative thing, your clients will view your company as a professional organization. Many industries require deposits or retainers which create a good working environment and a beneficial relationship for both of you. A client who is required to pay a retainer will feel a greater commitment to your company and you have a greater chance of them paying when the project is finished.
Invoicing accurately and in a timely manner is a top priority for all construction companies. In order for the payment cycle to be fast you need to:
- Put your invoices out in a timely manner—No matter how big or small your company is, getting your invoice to the client quickly is essential. Quality construction accounting software allows companies to keep track of all invoices and payments received without difficulty. The faster you are able to invoice after a project is completed, the more likely you are to get paid. If your company invoices on a monthly basis, be sure to bill on the same day each month.
- Make payments come faster—If your company still uses and accepts paper checks and conducts business through letter mail, you might want to consider using email and automatic payments. Web based construction software allows for same day payments.
- Invoices have to be correct—Be sure that all team members have put in all time worked and expenses pertaining to the project before invoicing. Again, web based construction software has team members entering all information daily which makes it possible to bill as soon as the project is finished.An easy to understand invoice will get more immediate attention then a confusing one. It will reduce delay of payment.The easier your invoice is for your client to understand and accept, the more chance you have of timely payment, and the less risk of dispute or delays. Your invoices should include:
- Pertinent information your client needs. Examples of this are a purchase order number or client number. The name of the person who will be paying the invoice should also be on it.
- Specify possible payment options. Be sure that every payment option your company accepts is clearly stated.
- Have a due by date. Your payment deadline needs to be clear on your invoice, such as “Payment due within 30 days of receipt of the invoice.”
- Have late payment fee visible and direct State what you charge for a late fee, whether that’s a flat rate or an interest charge on late payments.
- Have incentives clearly stated If your company offers incentives for early payments such as a discount, make sure your client will see it so they are enticed to pay fast.
- Manners go a long way Polite phrases such as, “Thank you for your business,” go a long way in helping the invoice-payment cycle. Politeness on your invoices can speed up payments by at least five percent, per Forbes.Follow up with your clients is extremely important when invoicing. Contact the client after you send the invoice to make sure it has arrived and ask if they have any problems or questions. Taking care of those problems and answering their questions will ensure that you will be paid on time.Making a connection with your clients and building a relationship with them will also increase the likelihood of you getting paid in a timely manner. Phone calls work better than emails when following up on an invoice, seem more personal, and maintain and friendly and professional atmosphere. Approach construction invoicing correctly and your company will be in an invoice-payment cycle that allows your company to flourish.