What to Do When Your Construction Clients Always Make Late Payments
When clients hire contractors to handle construction projects, late payments have always been the norm in the industry. No matter how common the pattern of late payments occurs in construction, addressing the problem is crucial as it can compromise your business's cash flow in more ways than one.
Often, delays in payments and poor money management can drain your cash reserves. To keep your small business afloat and sustained, you must get your clients to pay their invoices on time.
It is crucial to handle late payments in construction to protect your business and ensure problem clients pay you. Here are some suggestions to avoid construction clients who don't pay on time:
Tip #1: Integrate Technologies that Automate Payment Reminders
If you're still sending letters or making phone calls to request payments, your business is still susceptible to late payments. The best way to collect payments is to automate the payment process, which is precisely what automated payment reminders do.
Automated payment reminders are simple emails or text messages encouraging clients to pay their invoices. These reminders can be sent to clients at regular intervals and are usually sent to the client's email address or phone number.
To remind clients of their payment due dates, you can send a notification when the payment is due. If a client misses a payment or requests an extension, you'll be able to handle late payments in construction easier.
Automated payment reminders are the most efficient way to collect payments from your clients because they can be scheduled. These reminders can be sent out weekly, monthly, or even daily.
Tip #2: Maintain a Consistent and Direct Communication with Your Clients
Consistent communication is essential in building good relationships with your clients. If you're encountering problems with your clients paying on time, it might be a lack of communication.
Maintaining consistent and direct communication with your clients is vital in solving late payments in construction. You can schedule a weekly follow-up call to keep your clients on track of their payment due dates.
Asking for direct feedback on the project outcome can also help you know more about the client's experience with your project. This can help you identify the issues affecting your client's payment and tackle the problem head-on.
Tip #3: Know, Protect, and Practice Your Lien Rights
As a service provider, you have the right to stake your claim on materials and items that you deliver. However, you first need to know and understand what constitutes lien rights. A lien is a legal right to hold and sell an item until the client pays their debt. Liens can only be imposed on the items the client owns, not the property they own.
There is a common misconception that a lien must be a physical object. However, it can be anything from money, materials, and services. If a client doesn't pay for the materials and services you deliver, you can place a lien on those items.
Keep in mind that some states may limit the types of items that you can place a lien on. To enforce your lien rights, you must research the local laws where you operate.
Tip #4: Vet Clients to Avoid Working with Untrustworthy Customers
Clients who fail to pay for services rendered usually have a history of late or non-payments. Some clients have such a poor track record in paying late that they don't even bother paying for the materials or services you deliver.
To protect your business from potential losses, you must vet your clients before signing a contract on their projects. When you vet your clients, you'll be able to identify their payment history and the overall quality of their projects.
Tip #5: Clearly Define Your Contract and Strictly Follow the Agreement
It is best to have a written contract outlining your work's terms and conditions. This contract should include your payment terms, the schedule of the project, and other important information.
As a business owner, you need to be as clear and direct as possible in your contract. By doing so, you'll be able to avoid non-compliance issues in the long run.
If you have a problem with a client who doesn't follow your contract, you have legal rights to take action against them. The first step when a client doesn't fulfill their contract is to send them a notice of the breach.
If your client still doesn't pay after sending a notice of default, you have the right to file a lawsuit against them. The number of times you send a notice can vary depending on the contract terms.
The Bottom Line: A Simple Guide on How to Manage Late-Paying Clients in Construction
The best way to protect your business from late payments is to establish good work relationships and maintain a high-quality project outcome. You can also integrate technologies that automate payment reminders and maintain consistent and direct communication with your clients.
Knowing, protecting, and practicing your lien rights is also important. You can vet your clients and strictly follow the agreement, which can help you collect all payments on time.
If you are looking for a construction estimating software that allows you to invoice and receive customer payments all through one platform, let’s talk. CostCertified's newest feature Payments will help you protect your business andwe’d love to show you how it works.