Getting work is challenging but being paid for that work is equally important. In fact, unpaid work is worse than no work because you'll incur expense and effort with no reward. You must ensure you get paid for everything you do, and promptly, so you retain profitability and have sufficient money to pay your workforce and suppliers.
In the construction industry, you have the protection of the mechanics lien that allows you to seek payment from other parties and to claim on the project site as collateral for unpaid debts. However, this requires you to issue a preliminary notice of claim early in the project and be willing to take action should things go bad.
Ensuring Prompt Payment
Generally, you don't want to resort to the mechanics lien to recover a debt. It's far better to be paid in the normal way because this ensures a more constant cash flow and avoids hassle. This doesn't necessarily require a lot of effort and mainly means adherence to basic business principles.
- Build a Good Relationship with Customers. It's good practice to establish first-rate relationships with customers because they're more likely to provide further work. It also helps with payment since customers are more likely to pay first the suppliers they rely on and use regularly. You need to build a feeling of trust, which requires you to do what you promise, respond to questions and sort out problems quickly without fuss.
- Set Out Terms Clearly. Ideally, every job should be covered by a contract that's signed by both parties. This will set out clearly the service you will provide and when, the cost and when payment is due. When billing the job, state clearly on the invoice when payment is due and set out payment methods.
- Be Prompt. Make sure you get the job completed by the stated time and, when done, submit your invoice straightaway. Any delays give an easy excuse for late payment that some customers will exploit.
- Stick and Carrot. Encourage prompt payment by offering a settlement discount, such as 5% for payment in seven days, and imposing a surcharge when payments are late. Make these terms clear in your contract and on the invoice.
- Chase Late Payments. When customers are late in paying, make sure you follow up quickly. If you use billing and accounts payable software, this can often generate automatic reminders but, if that has no effect, make a phone call and ask for payment. Always be polite but don't be afraid to push hard because it's your money and the customer is at fault. If the customer still fails to pay after several attempts, don't hesitate to use the mechanics lien or other means to get paid.