If you’re like many construction companies, your payment process could use some brushing up. It can take months for a construction business to get paid. Payment delays aren’t just frustrating; they can cause cash flow problems, delay projects, and detract from essential business relationships, especially in the construction industry.
Here we’ll discuss some things you can resolve to move money into and out of your contracting business faster to make the most of your construction payment management habits.
1. Fix your construction payment schedule
You can’t always control when you get paid for your work on your construction project. However, you can resolve to create payment terms in your construction contract that work best for your business. Protect your cash flow by signing construction contracts that require you to pay and get paid at the best possible times during the job. Include progress payments at intervals that will facilitate cash flow to allow for the project’s continuation before collecting the final payment.
If your projects include progress payments, make them work strategically for your accounting patterns. Create a progress payment schedule based on maintaining enough residual cash in your account to pay for supplies, labor, and unexpected costs.
Create payment schedules for your workforce, subcontractors, and suppliers that coincide with payment due dates from your clients to balance your accounts throughout the project’s lifecycle and avoid negative cash flow.
2. Send preliminary notices
Make an effort to communicate better, including sending preliminary notices when you start work on a construction project. Clearer wording in construction documents and clear expectations between the project manager, business owners and other stakeholders will help avoid many problems in your construction projects.
A preliminary notice, also called a notice to owner or notice of furnishing, notifies an owner or general contractor of work a contractor is doing on a project and any payment due dates that apply.
While some subcontractors find sending preliminary notices a touch of overkill, they open clear lines of communication and clear up confusion about the status of work on a construction project, the construction payment schedule and could facilitate faster payment.
3. Make proper use of lien waivers
Construction liens and lien waivers are important tools within the construction payments landscape. Construction liens are legal claims for payment on services or products a contractor has used to improve a property on behalf of an owner. Liens get registered to real estate titles on the property and can impact the property owner in the future, which makes them effective tools for contractors to ensure prompt payment.
A lien waiver is a document a contractor signs after being paid that relinquishes the ability to file a lien on the property for that payment. Owners may require a completed lien waiver before issuing payment to a contractor, and obtaining this paperwork may involve a lot of time-consuming back-and-forths. Send an appropriate lien waiver, often a conditional lien waiver, with the invoice to expedite the construction payment and paperwork process.
4. Invoice quickly
Make an effort to send your invoices promptly. You can’t blame an owner or general contractor for slow payment if they haven’t received complete and detailed construction invoices promptly after you’ve completed your work.
Make sure your invoices include
- Your business name
- An invoice number
- An invoice date and payment due date
- The client’s name
- A detailed rundown of the products or services you’ve provided
- Payment terms and information on how to make payment
Likewise, when you receive an invoice, pay subcontractors as promptly as it makes sense for your cash flow so you can clear your own accounts payable on time.
5. Follow up on your invoices
Keep an eye on your unpaid invoices and follow up with reminders to jog clients into paying faster. Use the payment due date on the invoice as your guide, and follow up on that date, as well as two weeks, one month, and two months following the payment due date.
Not every company has a robust accounts receivable department, but sending payment reminders can improve your odds of receiving payment quickly.
6. Make it easy to pay
Finally, whether you’re paying or being paid, resolve to make payment super simple. With Truss, you can insert payment links directly into your digital invoices so that clients can pay with a few clicks. Once they do, the funds are available to you instantly, so you can use them to keep your construction projects moving.
Import payable invoices directly from your accounting software into Truss to make payments a breeze. As soon as you make a payment, your vendors can access the funds through their card or by ACH.
Pay and get paid faster
Building a smart payment routine for your construction payments can help move money through your construction business faster. Create healthy payment habits with smart construction payment schedules, clear communication, automated assistance, and easy bill payment.
Ready to make your construction payment management a breeze? Contact Truss for a demo now!