Friday, January 15, 2010

Are Slow-Paying Customers Slowing You Down?

Many contractors are feeling the pinch.

Slow-paying customers don’t just cause headaches – their actions (or inaction) causes a ripple effect that touches everyone you do business with, from the supply house to your insurance broker, and can result in incredible stress if your business does not have the cash on hand to carry the job.

Contractors whose customers are paying on time often employ these three simple strategies:

  • Upfront and constant communication

  • Prepayment requirements

  • Credit card back-up plans for customers who don't pay on time

To further enhance your chances at receiving timely payment, consider the following:

  • Require payment at time of service: Be clear in your contract terms that payment is due immediately upon completion of a job (or whatever the contract’s progress payment schedule provides for). Consider collecting a deposit upfront (no more than 10% or $1,000 – whichever is less – for home improvement contracts, but you have some flexibility in other types of contracts).

  • Communicate: Be upfront with your payment requirements so there are no surprises, and stay in constant communication with your customer.

  • Accept credit cards

  • Consider alternative payment options: Short-term financing plans may offer way to recoup payment from customers who are unable to make full payment. A contractor can earn interest off the unpaid balance and it provides the customer a dignified way to resolve a potentially embarrassing situation.

  • Be flexible: If you require payment at completion of service but your customer can't pay you until "the 15th of the month," offer to come pick up payment on that date.

  • Screen potential customers when they call: Trust your instincts. If a potential customer activates your “spidey sense” and you don't feel good about doing the job, it may be in your best interests to pass on the project.

  • Offer upfront pricing: If applicable, agree to a set price for the work being performed, rather than completing the project on a time and material basis. That way, the customer is not surprised by – and therefore reluctant to pay – your invoice.

  • Email your invoices: Many businesses use e-mail as a cost-effective means to invoice customers. E-mails are more likely to be read and noticed than an envelope plucked from a mailbox stuffed with catalogs, solicitations and the Pennysaver.

  • Enforce your legal rights: A mechanic’s lien or stop notice may not be applicable to every situation (such as those with an extremely low dollar value); however, the process can be completed in a cost-effective manner and can result in prompt payment (particularly when the property owner is attempting to refinance , or when a lender is trying to sell a foreclosed property, for example). To ensure you preserve your mechanic’s lien or stop notice rights, make sure you serve a Preliminary 20-Day Notice on the owner and prime contractor (if you are a subcontractor); if you are a prime contractor, take care to ensure that your contracts contain any required disclosures, notices, etc. If the amount you are owed is low enough, consider filing a small claims action, which is quicker and less costly than initiating litigation to foreclose a mechanic’s lien or enforce a stop notice.


contractors said...

Sometimes the customers are real reason for frustration as they don't pay the cash amount at the proper time and due to this we always have to suffer in our business.

Home Improvement Contractor said...

And if the payments of the customers were delayed, there are chances that the contractors' services to the other customers who pay on time will be affected and delayed also.