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What can I do to ensure clients pay on time?

The best way to ensure that a client pays their bills on time is to set a clearly defined payment schedule at the beginning of the project. A Construction Contract or Construction Management Agreement can include payment terms that address the following issues and more:

  • Your billing process, such as if you require progress payments, or a down payment and material costs upfront.
  • A payment schedule showing due dates, or triggering events, for each payment.
  • The physical payment process, including payment options for credit cards, checks, electronic payments, and so on.
  • An explanation of how to handle change orders or new projects, and how they can affect the total payment due from the client.
  • A clear description of late payment fees or penalties, and when you assess them.
  • A statement that excessive payment delays can lead to a pause in the construction project.

You can review the provisions of the contract with the client before they sign to make sure they understand their payment obligations. To help formally outline payment terms, customizing contract templates for construction and maintenance & repair projects, can make the terms clear for your clients.

Once you have a signed contract, maintain regular communication with the client about your billing process to reinforce the due date for payments. A variety of billing and invoicing forms are available to help you with this. Examples of some steps you can take to support this include the following:

  • Automate your billing process as much as possible. Your accounting software can let your clients know when it is time to make a payment.
  • Make the payment process easy for your clients. This could involve, for example, an online payment portal where they can pay by credit card or other electronic means.
  • Send Invoices in a timely manner. If the Construction Contract says that payments are due on the 15th of each month, you might send the client a current Invoice at the beginning of each month so that they receive it two weeks in advance.
  • When you send progress or milestone updates to the client, include an Invoice update. You may also include a Statement of Account if you are concerned that they could fall behind on payments.
  • At the end of a project, send closeout documents to your clients quickly to inspire them to send your final payments quickly.

Payment delays may still happen despite your best efforts to keep clients informed about what they owe. If a client misses a payment, you can contact them to remind them what they owe and what you are doing to collect their bill. Consider some of the following recommended communication tactics:

  • You can contact a client about a late payment at almost any time after the due date has passed. This could be a phone call or a preliminary notice in writing. Keep in mind that a delay of a few days could be an innocent mistake rather than an effort to avoid paying.
  • A 30-Day Past Due Letter is a more formal notice that a construction business can send to a homeowner once their account is getting significantly behind. You can follow up with a 60-Day Past Due Letter and a 90-Day Past Due Letter if necessary.
  • You and the client may be able to work out a Payment Plan that allows the client to catch up on their bill by paying in installments. This can be an effective way to ensure that you get paid with minimal conflict.
  • If the client continues not to pay what they owe, you may need to send a Collection Letter to notify them that you are turning the account over to a debt collector.
  • In some cases, you might be able to file a Mechanic’s Lien to secure payment of your bill. The laws on Mechanic’s Liens vary from state to state. If you are not already familiar with the process, you may want to talk with a lawyer first. 

What payment platforms and processes encourage timely payment?

Giving clients an easy way to make online payments can help the payment process run smoothly. Make sure you are set up to take debit or credit card payments, as well as payments via app-supported electronic payment systems like PayPal and Venmo. Also, provide clients with the ability to opt into automatic payments.

Some clients prefer more traditional payment methods, such as cash or check. You can accommodate them by accepting payments during regularly scheduled site visits or meetings. Also, do not forget to include the specific name you would like written on the check, as well as a mailing address, in your Invoice or billing document.

What kinds of incentives can construction contractors use to encourage payments?

You can offer rewards for early payments or the use of a preferred payment method, such as:

  • A discount for payments made before the due date.
  • A larger discount for clients who pay in full upfront.
  • A discount to encourage certain payment methods, such as a discount for clients who pay by check equal to the amount you would pay in credit card processing fees.

For contractors that warranty their work, it can be helpful to remind customers how to contact you for a follow up or to request additional service.

How can construction companies avoid payment delays?

One of the most effective ways to avoid payment delays is to be upfront and firm with clients about your policies regarding billing, late payments, and non-payment. Keeping them informed throughout the construction project can also help maintain cash flow:

  • Send clients reminders before they receive a bill or before each payment is due.
  • Be clear with clients about when you assess late payment fees. Remind them that late fees may increase the longer they remain behind on payments. Be sure they know at what point you intend to stop all work.
  • Send a preliminary notice the first time a client misses a due date. Include a copy of the Invoice and a notice of your rights under the Construction Contract and the law, including your right to file a Mechanic’s Lien for nonpayment.
  • Do not make any verbal agreements about payment. Make sure all agreements, including change orders, are in writing and signed by both you and the client. Provide the client with a copy of everything you both sign.
  • Do not sign unconditional waivers of any payments. These could take away or diminish your lien rights.
  • Talk to a lawyer about the best way to collect payment in order to protect your lien rights.

The laws dealing with Construction Contracts, payments, and debt collection may vary from one state to another. If you have questions about a client’s late payments or non-payment, reach out to a Rocket Lawyer network attorney for affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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