Would you agree that cash flow is the most important part of your business? Yes, I think as Construction Entrepreneurs we can all agree that cash flow is king.
If customers are not paying on-time, a norm in the construction industry. Then where is the cash coming from to pay for the job expenses? Which you immediately concurred the moment you signed the contract.
Cash flow is effected
Construction contracting is already risky business. Adding the difficulty of knowing how long it will take your customers to pay their bills for the project is scary.
Most customers promises to pay you in 30 days, even after you stress to them you'll need to be paid on-time to keep cash flow steady. Until you complete the work, submit your invoice it takes 90 days to be paid.
Some contractors seek traditional financing which bring it's owe stew of challenges.
So cash needed to float a $15,000 is now a whooping $45,000. Now because your customers are paying slow this obliviously mean the in flow of cash will also be slow. The industry average to turn your invoices into cash is anywhere between 50 to 75 days, depending on the project type and your role. this time period only commence after you have billed your customer. Add 50 to 75 days to the time it takes you to be in the position to invoice. Now your cost is adding up very quickly due to carrying time frame of 71 to 96 days if you took 3 week (21 days) to invoice.
Will it be impossible to make Net 30 actually paid in 30 days?
This means we are speeding up payments in an industry that infamously known to pay late. Any little added time to getting paid faster is worth it if well ultimately increase your bottom line. You will have to put in the effort to changing your customer payment processing procedures. Even if you are able to again a day or two in faster payouts is a total win. Either way the benefits that come with the improvement will far outweigh the time and effort required to gain a day or two faster. If you continue your efforts with every customer might be the difference between your business thriving or failing.
Here are our suggestions:
1. Charge credit cards upfront.
We went through a rough period where invoices were very late from a few clients. Now we collect everything up front through credit cards. You lose a bit of money from the transaction fees, but having the cash up front is totally worth it for us, especially because we don't waste our energy running after unpaid invoices.
- Patrick Conley, Automation Heroes
2. Say thank you.
Avoid generic language like "ACME thanks you for your business," and add a genuine, heartfelt thank you to invoices. FreshBooks estimates that simply adding "thank you" can increase the pay rate by 5 percent, which makes it worthwhile to test.
- Kelly Azevedo, She's Got Systems
3. Send reminder emails before payment is due.
The best way to avoid having delinquent accounts and increase the speed of collections is to send out a friendly reminder email to your clients that their invoice is due the next day. It's much better than telling them they are late at making a payment. It can be automated with software and significantly reduces the likelihood of that account becoming delinquent.
- Enrico Palmerino, SmartBooks
4. Require deposits.
We don't start work on projects for a new client without a deposit. Even if it's just a token amount, it forces them to put some skin in the game. It's a simple thing, but I'm amazed at how many startup service firms don't do this.
- Mary Ellen Slayter, Reputation Capital
5. Charge a fee for late payment.
While charging late-payment fees can be upsetting to customers and vendors, many will understand the reason for it and simply pay invoices faster rather than actually paying a penalty.
- Andrew Schrage, Money Crashers Personal Finance
6. Seek legal counsel.
As heavy-handed as it may sound, in several cases where invoices were months past due, I have simply had my lawyer send a short, friendly email asking for an update. A few days later, a check appeared. Use when necessary to avoid crying wolf.
- Gideon Kimbrell, CLUBSCORE, INC
7. Use PayPal.
We have started using PayPal for many of our contractors. Unless you're paying by credit card, the service is free--and fast. I have noticed that many people think there's a charge to send someone money, but generally there's isn't a fee through PayPal.
- Brendon Schenecker, Travel Vegas
8. Make friends with clients' accounts-payable staffers.
For big clients or customers, have your account manager or accounts-payable department send them a small gift (such as cookies) proactively, along with a note introducing yourself as a resource and letting them know that you're thrilled to be working with them. And then make sure your invoices stand apart from others, such as by color.
- Reid Carr, Red Door Interactive
9. Knock on their door.
For some clients, the easiest way to get paid is to knock on their door and collect payment. It's very easy for some people to dismiss your calls, emails, and letters. They may just be putting it off because it's inconvenient for them, or they're trying to wait you out. Saying hello in person can set tardy vendors and clients straight without being confrontational.
If you have a few suggestions that have worked for you lease help us and leave a comment.
This means you may have to send invoices on every single project even when it's not required. You have to be very discipline and proactive.
We pull content from several different sources for our blogs.
Tyrone Jones- Construction Entrepreneurs School and Services