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Steady, reliable cash flow is crucial for the survival of your construction business \u2013 so taking steps to ensure your customers pay promptly is a key priority.<\/p>\nSteady, reliable cash flow is crucial for the survival of your construction business \u2013 so taking steps to ensure your customers pay promptly is a key priority.<\/p>\n
Debtor days refers to the length of time it takes clients, on average, to pay you for the work you\u2019ve done. A higher number of debtor days means clients are taking longer to pay you. A lower number of debtor days means clients take less time to pay you, which means there\u2019s more cash available for your business to use.<\/p>\n
In the construction industry, debtor days can average as long as almost three months. Shortening that length can have a huge impact on your cash flow.<\/p>\n
When your clients consistently pay on time, you\u2019ll avoid the dreaded \u201cfeast or famine\u201d cycle. You\u2019ll be able to pay your vendors, suppliers, and employees on time, and, not least of all, yourself. Additionally, if clients start taking too long to pay you, you may leave money on the table in exchange for collecting anything at all.<\/p>\n
Implement these nine tips to improve your construction business cash flow.<\/p>\n
Before you start working with any new client, always provide your terms in writing. Clearly state your rates, payment due dates, and your policies regarding late payments \u2013 including any fees you\u2019ll charge on balances owing. Make sure your client signs the agreement indicating that they are aware of your terms and conditions. Don\u2019t work with any client who refuses to sign.<\/p>\n
Large clients may have lengthy payment processes that require invoice verification. They may also receive dozens, or even hundreds, of invoices on a regular basis. As a result, their policy may be to pay invoices only on certain days or only after so many days have passed from receiving the invoice.<\/p>\n
If possible, submit your invoices with their payment cycle in mind. If they only pay on the 15 of the month, get your invoice in before that date, so you can get paid this month instead of next. Make sure your invoices have all the information your client needs to quickly and efficiently approve your invoice. Have a checklist of all the information to include so they can approve it without coming back to you with questions.<\/p>\n
Invoice as quickly as you can. If you invoice on completion of a project, have your invoice ready to go by the final day, so you can send it right away. Every day you wait to send an invoice is another day you\u2019ll wait to be paid.<\/p>\n
If you\u2019re currently preparing your invoices manually, switch over to an accounting system with automated billing. You\u2019ll never forget to invoice a client, and you\u2019ll eliminate errors. You\u2019ll also be able to see when the invoice was sent, who it was sent to, and when they viewed the invoice.<\/p>\n
Send an invoice reminder before payment is due. People forget about their invoices, or invoices get misplaced, and a simple reminder can go a long way to helping clients remember.<\/p>\n
Call your customer immediately when a payment is past due. Ask for the status of the invoice and if there\u2019s anything you can do to speed up payment. Sometimes a simple change, like including a purchase order number on the invoice, can speed up processing times.<\/p>\n
Consider offering clients a 2% discount when they pay their invoice within ten days. In this scenario, a $1000 invoice would be reduced to $980 \u2013 not a huge loss for you, but an attractive cash-saving incentive for your customers. It can be worth it if it frees up cash for your business.<\/p>\n
As part of your terms, specify that if a client\u2019s payment is past due, a weekly fee of 2% will be added onto the total until funds are received in full. If the client goes past due, charge the interest.<\/p>\n
Collect a partial deposit \u2013 or the entire amount in full \u2013 before you begin a project.<\/p>\n
Stop your supply of products or services until you receive payment. With this tactic you\u2019ll avoid the accumulation of an even greater loss with a consistently late or non-paying client.<\/p>\n
Monitor who owes you money and how much on a weekly basis so you can act fast if a customer hasn\u2019t paid on time.<\/p>\n
Perhaps the most important tip for encouraging prompt payment is excellent communication. Be clear on your terms and ensure you send out your invoices promptly.<\/p>\n
When you follow up on a late invoice, ask when you can expect payment, and agree on a date.<\/p>\n
If the money still isn\u2019t forthcoming, consider your legal options. You may not want to resort to legal action, but it\u2019s important to send a message not only to that unpaying client, but also to others that you will take necessary steps to ensure payment.<\/p>\n
Remember, cash flow is the lifeblood of your construction business.<\/p>\n","protected":false},"excerpt":{"rendered":"