Builders rarely receive payment for their work at the right time and for the exact amount. The harsh reality is that contractors seem to be at the bottom of the payment pile. Late payments and unpaid invoices are huge headaches for countless small construction companies and even most independent contractors in many parts of the world.
Cash flow is king! Payment for your work needs to be punctual because it is not just a mere sign of completion. Money is the lineage of your business, which is why it controls your entire operation. Consequently, when clients frequently miss payment deadlines, your contractor's business can be compromised.
Just a reminder in case anyone forgets: contractors have a legal right to claim payment for the work they performed.
“Payment is the gratitude our builders receive for their hard work.”
Effects of Late Payments and Non-Payments
Start-ups or small businesses have a high chance of bankruptcy if the company fails to establish valuable and useful payment management. Additionally, slow-paying customers can affect how you pay your staff. Because you are so dependent on your customers, your ability to pay your staff on time may be reduced.
Maintenance and improvement of construction equipment and other tools may slow down. Considering these are the significant aspects of your business, your plan to take your construction business a notch higher may also slow down.
For aspects of the project, these payment issues can seriously hamper the ability of clients and contractors to execute and complete the work within a schedule based on the given budget. Sometimes the construction project can also be put at risk and productivity becomes slow. With the facts presented, we can say that payment is a joint and several liability.
This includes scenarios such as if a builder fails to notify the customer and provide the billing statement, or if a customer neglects and refuses to pay. Therefore, the payment system clearly depends on the client-builder relationship. So the big question is… how to manage delays and non-payments by contractors?
Managing Late Payments and Non-Payments for Contractors
Overcoming cash flow problems can help minimize variations in income and expenses, while also allowing you time to plan for future business growth. If you think your customer is making payments difficult, here are ways to deal with payment issues.
One way to ensure payment for your work is to include a late payment fee in your construction contract. It's best to make sure you state this term at the beginning of the contract process. Some include a fine of at least 2% if you don't pay within 30 calendar days, or 3% for 60 days, and so on. It's actually up to you, but the client must also agree to it.
To be honest, talking about payment terms is a crucial and sensitive topic for construction transactions. Therefore, discussing your terms may be a little difficult for you, but know that you have the right to be paid on time. Keep in mind your legal rights and the impact of unsecured payment terms on your business.
2. Review the signed agreement and construction contract
Don't settle for a simple handshake. Use construction contracts and other legal documents if you are planning to obtain a new project opportunity. A contract guarantees all the legal rights of your builder or contractor. This helps you in many ways, especially with payment.
However, if you have already performed half of the work or completed the entire project, the best step is to review the construction contract and other agreement documents that you and the client signed before construction began. By doing this, you will be clear about your agreement and can use it as proof of client contract violations.
3. Negotiate with the customer
Discuss your concerns with the customer. This is the easiest and most effective way to deal with contractor late and non-payment issues. I asked the reasons why you are still not receiving the amount in a very nice way. Don't be afraid to speak up if you think your customer is about to scam you.
You can also suggest resolutions on how these debts will be paid off and settled, but always place interest on them. Propose something that could benefit the contractual parties. At this time, you would be irritated, but you need to think wisely about the best method to solve the problem. Or else you will earn nothing from your work.
4. Agree on a fixed payment schedule
The main reason to set a payment schedule is to have an actual date to claim and release payment. Construction is a complex process. It includes a lot of work, investment and a lot of emotions for the client and the builder himself. It's very tiring, so having a specific payment date makes the process less painful.
It is best to add this to your construction contract so that contractual parties are informed. Know that setting a payment schedule is not yours to decide, but you can suggest it. It must be agreed by both parties and sealed with a signature. If you do this, you can manage your cash flow.
5. Document invoices and other supporting documents
Documentation is another way to be safe and secure. Keeping a copy of your entire transaction history can be the cure for the huge headaches caused by payment problems.
This way, when disputes arise, you will have something to show and remind your customer of the disputed amount. It can also help you keep track of how much a client still owes you. It keeps you organized and you can easily see if the customer starts paying late.
6. Good communication is key
Construction is a temporary undertaking. You need to work with people you just met. Having a clear transaction and good communication are always the best paths. Don't hesitate to ask the contractor questions that you are unfamiliar with. Setting your expectations for their work can also avoid misunderstandings.
However, if you are experiencing construction disputes now with your project, don't be discouraged. There are numerous construction dispute attorneys to help you resolve disputes.
7. Consider taking the situation to court
Considering that taking legal action is just a waste of money is truly disappointing. You may think you don't have the money right now to pay a lawyer, but if you let a lawyer help you resolve your situation, you may even get the exact payment plus compensation for the problems your clients have caused you.
Don't hesitate to take your situation to court. If you have already negotiated, but nothing has happened, it is time to look for a legal expert to take care of the matter. A construction lawyer will represent you in court after filing a lawsuit against the client. It will help you understand your Payment Security rights and the legal process for enforcing them. Builders and contractors deserve to be paid for their hard work.
How Construction Software Can Help Handle Payments
Construction is not as easy as it seems. As a lawyer working in the construction industry, I must say that we need to take advantage of the opportunity that technology offers us. Construction software is a great tool for a more collaborative and accurate construction process. Most especially, it helps you get paid on time as using MS Word is simply not enough.
Using construction software saves time. Just click on a few buttons and your employees' working hours will appear with the total amount to be paid. Construction people are so busy doing the actual work to get paper and document everything, right? Work reports need to be accessible and quick so that productivity is not affected.
Using construction software helps you monitor the work of your contractors. Sometimes managing your people is difficult. By using the software's features, you will know whether your people are working on time and the work they complete at a given time. In short, it helps a lot with documentation and payment release.
Using construction software can provide security to customers. Getting your builder or contractors to use the software has a huge effect on customers' impressions. This gives them the guarantee of quality work. Why? Because you are using a well-planned system for your project. This means that all aspects of the work are under control through a good management system. This way the tendency for failures is minimized.
No matter how complex the construction, we always return to imagining the result because that's what matters. Whether you are building a new house, an apartment or huge buildings, we should always use the basics as a basis. Establishing well-planned payment management can therefore avoid problems receiving payments.
