Dispatch #68 - Billings & Collections: How to Get Paid Faster
Billing and collections are so critical to contractor cash flow that every now and then it’s worth taking stock of your company’s entire pay cycle: pick a process problem, fix it, then repeat. It’s hard work, but just about guarantees to get you paid more quickly and with less hassle.
In this multi-part Dispatch I offer up a few dozen such process points to consider. In the first installment, I suggested ways to measure success and how to sell work that pays quickly.
The next “best practice” to deploy, once you’ve sold the work, is to set the job up right.
Your job set-up checklist should cover payment terms and the customer’s pay application schedule and specifications.
Ensure everyone—field, project management, accounting, and your subs and suppliers—knows exactly when, what and how to submit. A day before the customer’s monthly cut off is not the time to figure out their online payment portal.
Confirm your customer’s A/P billing contact info as well as pre-lien data.
The next step to getting paid—if you’ll forgive me for being Mr. Obvious—is to deliver the work that you sell.
All things being equal, the sooner you complete the work, the sooner you can bill the customer, and the sooner you’ll get paid. Remove obstacles to delivery. Throughput speeds up cash flow.
Give your customers fewer reasons (or excuses, in some cases) to slow pay or no pay by performing the work on time, on budget, and on scope. It’s not foolproof, but it’ll go a long way.
This goes for both the original contract and change order work. Get signed authorization for changes to schedule, budget, and scope.
Document job activity. Substantiate work—hours, photos, RFIs and submittals, undiscovered conditions and conflicts—to defend against specious excuses to delay payment and even more serious legal claims.
Work the punch list. One commercial tenant improvement contractor told me he walks the jobsite with the owner and several of his tradespeople, who fix things on the spot, shredding the punch list in real-time.
Deliver closeout documentation in a timely manner.
Protect your profits by fixing the weak points in your collections cycle. Each fix improves your odds of timely, low-hassle payment. Sell the work, do the work, get paid.
Need help with this or other financial matters faced by construction contractors? Let’s talk!
David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.