Construction Business Talk

Sage Master Builder T&M Billing

Sage Master Builder does a very nice job of making it easy and straightforward to prepare detailed Time and Materials Invoices.  This video will take you through the basics of how to set up, prepare, print, and post T&M Invoices.  We hope you enjoy the presentation:

T&M Billing Video

Sage Master Builder 14 - Added Features Videos

Sage released version 14 of Master Builder around mid-August.  Clients who are current in their annual subscription are in for some nice improvements.  We've produced a few videos to help you see what they do and how they work.  We hope you enjoy them:

Attachements - The ability to add files and websites to various spots in the programs like job, clients, etc. and open them in their native applications.  Very cool place to store emails!

Subcontracts - Now you can track you subcontracts by task.  For example, your concrete sub might get paid for foundation, slab, and sidewalks.  You can now break these down, issues changes against each, and pay against each.

New Reports - Some new reports have been added: Income Statement by Month and Job Income Statement. 

For a list of all the new features use the Help menu and select "What's New"

Take those discounts!

So, how much money do you save if you take a 2% discount for paying your bill in 10 days vs. no discount paying in the normal 30 days? It's pretty significant!

Most contractors don't realize how much of a money conduit they are. A $5MM a year builder will push $400,000 per month through the bank and write checks to suppliers for over $2MM. That's almost $200,000 per month! If we assume that all suppliers would give a 2% discount the savings would be $4,000 per month or $48,000 per year! If only half your suppliers will give this discount, it is still $20,000 per year. What is the rate of return for doing this?

Assume you have to borrow the money to take the discounts. And, to make this illustration easy to understand, let's assume you have to tap your credit line for $200,000 for the entire year and the interest rate you pay is 8%. Your cost is $16,000 in interest. Your discount savings is $48,000. The difference is $32,000. And, that is $2,650/mo. you put in your pocket!

Let assume you don't borrow the money. What is your rate of return on the $200,000 you have invested? $48,000/$200,000 is 24%. The rate is actually higher since our example assumes the money is invested for the entire year. However, it is only used for 20 days per month. 30days/20days = 1.5. 1.5x24% = 36%.

Where can you invest your money and get a 36% rate of return? Nowhere!

Bill Early Bill Often

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 25^th.  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.

Collecting Money

Contractors, like everyone else in the business community, are always suffering from lack of cash. This is especially true these days. Let's talk about maintaining the inflow with closer attention to collections. Important items to consider are:

1. Contract Terms
2. Prompt Billing
3. Proper Format
4. Watching for Overdue Payments
5. Making Collection Calls

Contract Terms

One of the interesting things about construction is the rules and the fact that there a few or none in the private sector. There are more in the public sector, but, depending on circumstances, even these are negotiable. Here are the four major areas of concern:

• Bill Points – The contract should specify how much can be billed and when. The object is to "front" load the contract, if possible, so your expenses are covered by income vs. borrowing on your credit line. Further, bill points should be clearly described so there is no confusion about timing. Private contracts might even have bill points specified on the Gantt Chart schedule.
• Change Order Billing/Claims Billing – Billing for these items can be done as soon as the work is complete if addressed properly in the contract. Waiting to completion only increases the likelihood they will not get paid.
• Retention – Again, if properly addressed in the contract, perhaps we can collect retention much earlier than the end of the job.
• Finance Charges – This is a touchy area. We suggest your contract address finance charges just in case. However, forcing the issue to collect them might be a different matter.

Prompt Billing

This is the one area most contractors can get the most results for the least effort. We simply need to make sure we are billing as soon as we can; not when we get around to it. Your contract will usually say the bill is due a certain number of days from the invoice date. So, if the bill is delayed a week, you can be pretty well assured the payment will be delayed a week. For larger bills this can get a little expensive. Just think about the daily interest on a large bill like $100K. At 6% interest it's almost $17/day.

Let's look at a contract with 30 day terms where the billing got delayed a couple of weeks vs. 15 day terms that got billed promptly. The difference is the 15 days plus the 10-day delay for a total of 25 days. At 17/day the total comes to $425. If you are billing $5,000,000 per year and this happens every time, your cost is 50 x $425 or over $20,000!!

The second major danger to late billing is the increased chance of not getting paid!

Proper Format

Many contracts will specify the appropriate format for an invoice like the AIA 702 and 703. If it does not, we think it is important to give the client enough information to make it easy for them to pay the bill; not too much and not too little. Too much confuses and too little makes it harder for them to write the check. Either of these may delay payment!

Watching for Overdue Payments

We think someone should be watching the AR Aging report on a daily basis. If payment is not received by the day it is due, someone needs to make a call. Of course, someone should have already made the call to see if the invoice was received. How about calling a couple of days after the invoice is sent to ask that question?

Making Collection Calls

Here's where you might think about formalizing the process and delegating the everyday collection efforts. Here is a step-by-step that might serve as a guideline for your company. Please understand this is a guideline. Maintaining relationships with your clients is a key to your success. Use these guidelines and some common sense to collect your money.

1. All contracts, where appropriate, will have proper pre-lien notices filed before work begins.
2. Bills will be prepared in the appropriate format and submitted to the client the day they are due.
3. Itemized Statements will be sent to the client monthly.
4. For invoices over $5,000
   1. A follow-up call will be made to the client or the client's Accounts Payable representative (APR) to make see that the bill was received. This call will be duly noted on the invoice.
   2. If the payment has not been received on the due date, our Accounts Receivable representative (ARR) will call the client or APR and inform them that payment has not been received. If the check has not been sent, our ARR will:
      1. Ask why payment has not been sent
      2. Rectify an problems if appropriate
      3. Determine when check will be sent and when we can expect its receipt
      4. Offer to personally pick up the check
      5. Offer to accept payment on a credit card
      6. Duly note the result of the conversation
      7. Send a letter, fax, or email to the client with a summary of the conversation.
   3. If payment has not been received on due date + 2 days, our ARR will again contact the client's APR and perform the same steps above. Send a 2^nd more strongly-worded letter to the client.
   4. If payment has not been received on due date + 5 days, our Project Manager (PM) will contact the client and repeat process.
   5. If payment has not been received on due date + 10 days, our owner will contact the client and repeat process. Send a stop work notice to the owner certified mail with return receipt requested.
   6. If payment has not been received on due date + 15 days, our owner will contact the client and repeat process. Send our attorney appropriate paperwork and note to begin legal proceedings.