By Jim Cumming
Those who have been in the construction business for a while put a lot of effort into billing despite the fact that it is a time-consuming task. The big reason for this is CASH FLOW. The longer the bill gets delayed being sent to the client, the longer it takes to get paid.
Here are some things you might want to consider to help you get paid sooner.
1. Create a job called something like Billing Coordinator. This could be part of someone’s job or for bigger companies a full-time position.
2. Once you have been awarded a job, create a billing schedule for it. Most contracts have billing “triggers”. These might be certain items completed, or dates of the month, or days of the week. These allow you to bill. Our Billing Coordinator should be ready to submit a bill the same day as the trigger was pulled.
3. Create a billing checklist for each job to include
a. Triggers mentioned above
b. Acceptable bill format. This might be specified in the contract. If not, the proper format is the one that makes it easy for the client to pay it. We would prefer not having the client call to ask questions about what is being billed.
c. Who gets the bill and will approve for payment. Submitting your bill to the wrong person will only delay its approval
d. Billing Terms. These may be addressed in the contract and are certainly negotiable. We would all rather get paid in 2 weeks vs. 30 days. It never hurts to ask.
4. Create a follow up procedure for bills that have been submitted.
a. If you mail it, call in a couple of days to see that it arrived. If you fax or email the bill, you can call that day. Use common sense with this. We would prefer not to irritate the client’s accounts payable clerk.
b. Always ask if there will be any problem about this being paid on time.
c. Make notes for each conversation especially with regard to payment.
d. If the bill has not been paid by the due date, call the next day and ask about it.
5. Send Statements each month. This is a standard communication used by all businesses. It simply recaps outstanding bills and allows the client to reconcile what they have outstanding with what you have outstanding. We recommend send statements on the 25th. Accounting software makes this pretty easy, especially construction accounting software like Sage Timberline Office or Sage Master Builder.
6. Know your remedies for non-payment.
a. Set up a procedure for who in your office calls about late payment and when. For example:
i. 5 days late – Billing Coordinator calls
ii. 8 days late – The Project Manager or Supt. Calls
iii. 10 days late – Your owner calls and follows up with a letter sent certified mail.
iv. 15 days late – Your Attorney Calls and follows up with another certified mail.
v. Each call should be a little more “serious”
vi. Each conversation should be documented and be available to the next caller.
b. Stop work – This is for the more serious situations and may seriously affect the relationship with the client.
c. Suing for payment
i. Small Claims court – You may sue for up to $7,500 and not have to pay attorney’s fees. Make sure you dot your I’s and cross your T’s. We also recommend having the papers served by the sheriff. Here is a link for some of the basics: http://www.consumeraffairs.com/consumerism/small_ca.html.
ii. Anything above the $7,500 limit will require your attorney.
d. Check Credit – A lot of collection issues might be resolved if we simply check the credit of our client prior to signing the contract. A bad report might cause us to:
i. Walk away.
ii. Have the money put in escrow.
iii. Have the client bond for payment.
iv. Raise the price of the bid to compensate for late payment.
