The construction industry brings unique challenges to contractors and subcontractors when it comes to credit management. Extending credit on large-scale construction projects can be risky, as projects require a large upfront investment of both labor and materials, and because projects can span years with payments made in installments.
Of course, extending credit and exposing oneself to risk is not unique to the construction industry. But the tools that exist to combat financial risk and secure payment in the construction industry are unique.
What are these tools? Mechanics liens and bond claims. Read on to learn how these legal tools, which are exclusive to construction industry participants, make the process of credit management in construction unique.
Lien Rights: What Are They?
Most parties who furnish labor or materials to construction projects are granted lien rights, in other words, the right to file a mechanics lien or bond claim in the event of nonpayment. These documents were introduced to the American legal system by Thomas Jefferson in the 1700s specifically to protect construction industry participants who performed work on credit from the risk that they wouldn't be paid. To learn more about how and why lien rights were developed, read our article "What Are Lien Rights?"
While similar protections exist in some other credit-heavy industries, mechanics liens and bond claims are unique and exclusive to the construction industry.
Mechanics lien claims are unique legal tools designed to ensure that contractors, suppliers, and other construction participants secure payment for labor or materials furnished on private construction projects. (Private projects are residential, commercial, or industrial. For more on identifying project type, click here.)
A mechanics lien is a security interest in the improved property. The lien encumbers the property, preventing sale or transfer of ownership, which motivates the property owner to make payment. If a claimant files a mechanics lien and remains unpaid, they may enforce the lien in court and foreclose the property. The claimant then collects payment from the proceeds of the property's sale.
Bond claims serve a parallel function to mechanics liens, but they are used on public projects (municipal, state, or federal projects). Bond claims are distinct from mechanics liens because while a lien claims a stake in the improved property, bond claims attach to the surety bond set aside at the beginning of a project. This is because it is impossible to claim partial ownership of government-owned property.
Unique Solutions with Unique Requirements
Mechanics liens and bond claims are unique to the construction industry. But the rules and requirements that govern them are unique to each state. And these rules must be followed to ensure that a mechanics lien or bond claim is valid.
Nearly 40 states require that lien claimants send some sort of preliminary notice near the start of a project in order to secure the right to file a mechanics lien. Failing to send a required notice may invalidate lien rights, and leave an unpaid construction party with little recourse other than filing a lawsuit.
Keep in mind - there are many benefits to sending preliminary notice even when it's not required.
Lien-related documents vary by state. Some states require that preliminary notices contain specific language, some states require that lien waivers follow a statutorily-required template - the list goes on. Be sure that any notice, claim, release, waiver, or other documents follows the requirements set forth by the state in which work is performed.
To ensure that a document is valid, use a lien rights management platform to prepare and send documents or download accurate form templates from a reliable provider.
Another key requirement that varies by state? Deadlines. Deadlines for sending notices, filing claims, and enforcing claims differ by state. Identifying and meeting deadlines is essential to successful credit management through securing lien rights.
Want to check a requirement or a deadline? Visit zlien's resources, select your state, and you'll find the information you're looking for.
Credit Management in the Construction Industry
Lien rights are certainly not the only element of credit management in construction. But they are unique to the construction industry, and credit managements who understand these tools can take advantage of them. Benefits of employing lien rights are improved cash flow, reduced DSO, minimized financial risk, and greater confidence when extending credit and taking on new business.
Want to make this process easy? Click the button below.
The post Why Credit Management in the Construction Industry Is Unique appeared first on zlien.
Credit teams in the construction industry constantly battle late payments. In particular, subcontractors and suppliers performing labor or supplying materials to help permanently improve a property are farther removed from the money behind the project, and, therefore, must often deal with dreaded DSO (Days Sales Outstanding).
Read on to find out some of the best ways that credit departments can reduce the time between working on a project and getting paid.
1. Send Invoices Early
By sending an invoice at the beginning of the project or shortly thereafter, a credit manager can effectively notify the party that hired them of the work being furnished, which prioritizes that payment. Additionally, in a state like Texas where monthly notice requirements and lien deadlines are based on invoicing dates, it’s a good idea to continually send those invoices if unpaid.
P.S. Another good step for a credit manager to take is to attach a conditional lien waiver to an invoice that acts as a receipt of payment. This strongly motivates the paying party to make payment, because the waiver protects them from double payment and the risk of facing a mechanics lien.
2. Track the Project’s Lien Deadlines
It’s extremely important to know the pre-lien requirements and deadlines on a projects. Simply put, construction participants can ensure that a lien will be valid (if it becomes necessary to file one) by keeping track of the initial date that labor or materials were furnished to a project, and by measuring deadlines from this date.
Though this process can be done manually in-house, the best way to ensure that a contractor or supplier hasn’t missed a notice requirement or a lien deadline, is to use a lien software that can provide clarity to the fragmented and nuanced laws for every state.
3. Send a Notice on Every Project (Even When Not Required)
Sending a preliminary notice to all of the other parties on the project and then following up with a notice of intent provides transparency to the other parties that might not know who is involved on the project. Secondly, it ensures that lien rights are secure and a payment is a priority. Read "Why You Should Send Preliminary Notice Even If It's Not Required" to learn more about the benefits.
By following up with the notice of intent to lien, a credit manager can warn the parties on the project that payment needs to be received, and if not, the next action is to file a lien on the property where work was performed or material was delivered. Property owners typically want to avoid lien filings, so informing them that a lien claim is imminent motivates them to get the payment ball rolling.
To see how one such company, thyssenkrupp Elevator Corporation, reduced DSO and saw drastic improvements in their collections metrics by sending voluntary notices, check out a recent case study.
4. Develop a Coherent Credit Policy for Late Payments
A credit department should constantly look for ways to improve on DSO, credit terms, and collections processes. One of the ways to do this is to evaluate and optimize current processes, and write a new credit policy if the current system is lacking.
This includes considering what the initial terms of a credit application should include and the information that should be gathered - including trade references - for each new account as well as developing a coherent process for collecting unpaid money.
5. Take Action When Necessary
To mitigate risk and force payment, credit managers must sometimes understand when to take action. By taking the necessary steps - such as sending notices and filing mechanics liens - a contractor or supplier will ensure the path to payment.
After taking these steps, there’s always the actual property to fall back on for payment. This may include sending an account to collections or enforcing the lien through a lawsuit to follow up on the mechanics lien.
Credit teams in the construction industry know that late payments are a problem. By considering some of the above steps, credit managers can reduce DSO of construction invoices, increase cash flow, and provide a source of accountability company wide on all projects.
The post How to Reduce DSO of Construction Invoices appeared first on zlien.
Small subcontracting firms looking to grow a business may be afraid to take on larger, higher-paying jobs for a few reasons. These jobs typically require a larger cash outlay, and the contracting firm often gets paid incrementally through installments over weeks or months. This can wreak havoc on cash flow — and then there’s the greater risk that the client won’t pay at all. Despite the credit-heavy nature of construction work, there are several ways subcontractors can grow business while minimizing their risk threshold.
Risks for Subcontractors
Construction subcontractors get paid through the general contractor rather than directly by the property owner. Sub-subcontractors have to wait for payment to trickle through an even longer chain of command. A break in the top of this chain — that is, a property owner who fails to pay or a general contractor who delays payment — can have trickle-down effects for all parties involved. Materials and labor are costly, and if customers pay late or fail to pay at all, cash flow suffers, making it harder for subcontractors to make payroll and stay in business.
A 2015 survey conducted by Taulia shows that nearly 50 percent of all subcontractors said they were paid late by clients. The average late payment came more than nine days after it was due, with 25 percent of respondents waiting more than 40 days to be paid.
What’s worse, the survey showed that subcontractors often agreed to discounted rates, even after the early payment deadline passed. Subcontractors shouldn't have to accept less compensation in order to receive any at all. It's not fair.
But these risks are not as dire as they sound. Safeguards like mechanics liens — available only to parties furnishing labor or materials in the construction industry — can help subcontractors secure payment and reduce the risks otherwise inherent to larger projects with significant cash outlay. Embracing these tools provides a significant boost to construction businesses looking to take on new projects, new clients, and grow.
Solutions for Subcontractors
Protecting a construction firm from nonpayment is essential to growing business. And protecting from nonpayment begins with understanding and employing lien rights. Mechanics liens and bond claims exist exclusively to help parties that furnish labor or materials on construction projects secure payment and minimize financial risk.
Unpaid construction parties may file a mechanics lien (assuming they met all preliminary requirements), which is a security interest in the improved property. If the claimant remains unpaid, they may enforce the lien in court, foreclose the property, and collect payment from the proceeds of the property's sale.
If a construction firm successfully secures the right to file a mechanics lien, the risk of nonpayment is significantly reduced. This permits subcontractors to take on new business with confidence.
Many states require that construction parties send preliminary notice in order to secure the right to file a mechanics lien (or bond claim) in the event of nonpayment. However, preliminary notices do more than just secure lien rights. Even in states where preliminary notice is not required, sending one can reduce DSO (days sales outstanding) and decrease instances of nonpayment. This improves accounts receivable and cash flow, which are essential to construction businesses looking to expand.
To learn more about the additional benefits of sending preliminary notice, read "Why You Should Send Preliminary Notice Even When It's Not Required".
Conditional Lien Waivers
Lien waivers are commonly exchanged on construction projects as part of the payment process, and sometimes these documents present tremendous risk for subcontractors. When conditional lien waivers are used, however, subcontractors can actually speed up the payment process without exposure to financial risk.
Conditional lien waivers are a specific type of lien waiver that does not go into effect until a certain condition is met. Typically they are conditioned upon actual receipt of payment, so the signing party maintains lien rights until their invoice is paid. For more on how conditional lien waivers help protect subcontractors from financial risk, read "Preliminary Notices and Conditional Lien Waivers: Insulation Against Financial Risk."
Want to create and send a conditional lien waiver for free online? Visit www.waiverexchange.com.
Credit & Accounting Tools
Pursuing and protecting lien rights are not the only methods construction parties can use to reduce risk and consequently grow business. Checking the credit history of clients before signing a contract or agreeing to generous credit terms is generally a good way to identify red flags. This helps strike a balance between high-risk, high-profit jobs and customers who consistently pay on time.
Also, implementing accounting software can help identify payment patterns, for example, which clients pay upfront or on-time, and which clients tend to pay late.
Minimizing Risk: The Key to New Business
Lien rights remain the key to risk management in the construction industry. By sending preliminary notice when it is required, and by filing a mechanics lien when necessary, subcontracting companies can secure payment on any project, large or small. By taking advantage of these tools, subcontractors can grow business by taking on accounts that may be slightly risky.
The post How Subcontractors Can Grow Business by Minimizing Risk appeared first on zlien.
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This week's Construction Financial Manager Review touches on a variety of subjects including the economy, construction technology, and operations. We try to provide you with major headlines and interesting insights to keep you on the cusp of industry news.
We hope you enjoy this week's review and would love to get your feedback.
What We're Reading
Key Articles from Across the Web This Week
Mortenson president: Construction industry is 'a prisoner to bids' - but change is on the horizon
"When I started with the [Mortenson], the industry was still very much a rip-and-read, competitive bid kind of industry," said Mortenson President Dan Johnson. "It has evolved into a professional services, very sophisticated, technology-driven, solutions-driven business." Read the full article on Construction Dive.
Making the grade: Summer camp introduces girls to the construction field
Learning to build a bench, toolbox, lamp and animal sculptures got Towers High school senior Nyomi Sorton thinking about a career in engineering. The Decatur student acquired those hands-on skills through summer sessions at Mentoring a Girl in Construction camp, a week-long summer session that has been held at Gwinnett Technical College for the last six years. Read the full article on AJC.
US home construction down slightly in May
Construction of new homes nudged down slightly in May, with builders pulling back in the Northeast and Midwest. Read the full article on US News.
Why we're obsessed with building tall
From the legendary Tower of Babel to the iconic Burj Khalifa, humans have always aspired to build to ever greater heights. Over the centuries, we have constructed towering edifices to celebrate our culture, promote our cities -- or simply to show off. Read the full article on CNN.
Cities face new urban problem: Their own skywalks
In a city where cranes and construction barriers mark a surge in new downtown apartments, hotels and offices, the sidewalks in Des Moines' core can be strangely quiet. Read the full article on The Jobsite.
What We're Writing About
Recent Articles by zlien Relevant to Construction Finance
Lien law alert from Texas: What not to do
Refiling a released lien is sometimes permissible, but it's generally better not to release a lien until payment has been received. Read this article about what not to do. Read the full article.
Hawaii project says aloha to mechanics liens
Hawaii is just like its mainland counterparts when it comes to lien laws- filing can be both complex and expensive. Here, a massive redevelopment project has faced nearly $10M in liens over the past two years. Learn more about this project and how they handled securing payment. Read the full article.
Where's the litigation in green construction?
Going green with construction projects can create serious perks, most importantly easing your impact on the environment. However, with the benefits of going green also come some pitfalls. It appears that the law has not caught up with the green movement, and environmental interests in construction have not really been tried in court despite the number of green projects skyrocketing. Read the full article.
The post Construction Financial Manager Review: June 24, 2016 appeared first on zlien.
The preliminary notice is one of the most potent weapons in a credit manager’s arsenal. It's fairly common for credit managers to send these documents on projects in states like Texas, Florida, or California, in which sending preliminary notice is required to secure lien rights. Read on to see why credit managers should send preliminary notice on every project.
So, why should they?
By sending a preliminary notice at the beginning of every project, a credit manager can provide transparency to the other parties up the chain (hiring party, other contractors, property owner) on the construction project.
Maintaining open communication is generally appreciated, which smooths the payment process and builds better relationships with clients and collaborators.
Not only is it a best practice for a credit manager to send a preliminary notice at the beginning of a project, this is the first step in protecting lien rights for work performed or materials supplied.
Even when preliminary notice is not required, it often speeds up the payment process and helps you avoid getting paid late or not getting paid at all.
When a credit manager sends a preliminary notice, this prioritizes invoices and allows for faster payment when the other parties on the project know who to pay (especially those credit managers that have an organized credit policy in place).
So now you know why credit managers should send preliminary notice on every project.
Another great step to take after informing the parties on the project, is to send a notice of intent in order to secure payment before attaching a mechanics lien to the property where work was performed.
It’s fair to say that most parties that send preliminary notices and notices of intent rarely have to file liens.
Furthermore, by implementing a software solution, a credit manager can take full advantage of the lien and notice process to send notices more efficiently, track lien deadlines in every state, and make valuable use of their lien rights.
The post Why Credit Managers Should Send Preliminary Notice on Every Project appeared first on zlien.
One of the most common concerns we hear when talking to potential clients is that using a software such as zlien will cost them - or one of their colleagues or employees - their job.
Using a lien software doesn’t mean you’ll lose your job. On the contrary, lien software is a tool that - when fully understood and implemented correctly - can secure your position as the office hero. Let lien software make you better at your job. Here's how.
Get Rid of the Guesswork
How much time do you spend researching, checking resources, and second guessing your understanding of your lien rights? Where are you keeping all of your data? How are you tracking your projects? Deadlines? Mailings?
A good lien software will manage all of these things for you. It will take your information and automate routine actions, calculate and manage your deadlines for you, give you prioritized lists of recommended actions, and send you a weekly summary of all your projects.
You will no longer be left guessing what your next task is, you’ll simply be able to take action.
Lien software is much more accurate than manual processes. For example, zlien has spent years consulting with leaders in construction, law, risk management and collections to build a software that encompasses every lien law, document, and requirement in every state. We put thousands of hours into accumulating this information so you don't have to.
A quality lien software has the resources in place to research and verify the information you are providing and, when needed, the resources to correct that information.
Using a lien software properly will simplify your workday and free you up to take on more projects. With zlien you will have 24/7 access to your account anywhere you have an internet connection. It works whenever you do.
Do you you have multiple users with different authority? Are you doing business in different lines of work or with different locations using different sets of rules? You can customize nearly everything with good lien software. What about other software that is part of your daily grind? Good lien softwares integrate with other platforms to make your job as pain free as possible.
The final word: Lien software exists to make your life easier and make you better at your job. It is a tool that exists to empower you to be as efficient, accurate, confident, and successful as possible.
The post Using a Lien Software Doesn’t Mean You’ll Lose Your Job appeared first on zlien.
Lien waivers are a commonly exchanged document in the construction industry. Typically, the paying party requires the receiving party to execute a lien waiver acknowledging that they have received payment and waive any future rights to file a mechanics lien on the project in question.
Since lien waivers are so frequently exchanged, the documents are usually prepared, signed, and passed along without much analysis. However, some lien waivers are created as a bargaining chip or waive more than just lien rights.
Here are a few lien waiver red flags to look out for when you’re preparing to sign a lien waiver:
Do you need to send or request a lien waiver? Click the button below.
Waiving More than Lien Rights
Read the document closely. Exactly what are you waiving? Make sure that you’re not giving up the rights to file liens on future unpaid amounts and projects. Or agreeing not to sue other parties should a dispute - unrelated to the payment dealt with in the waiver - arise.
It is essential that dates on the lien waiver match the dates to be paid. If not, the party receiving payment risks losing lien rights to labor or materials not yet supplied or not yet paid for.
Unconditional Waiver Danger
Signing a lien waiver on the the promise of payment is suitable if the waiver is conditional (conditioned upon actual receipt of payment). However, if an unconditional waiver is requested prior to confirmed payment, the receiving party may be signing away all lien rights. Make sure what the waiver says was paid is actually what was paid. For more on unconditional waivers, read When to Use an Unconditional Lien Waiver.
Watch out for additional declarations or certifications in the waiver that could expand your contractual obligations and responsibilities. Be wary of language certifying that all work was properly done in accordance with contract requirements; certifying all payments to all parties have been made, including tax issues; or indemnifying any parties in the event a claim arises against them are just a few examples.
While the liability of the individual signing in a representative capacity is limited, a bad lien waiver (or a dishonest contractor) may ask for admissions by the signing party that could make them personally liable for future issues or disputes.
Is the owner withholding retainage on a project? Are you waiving your right to be paid for retainage work by signing the lien waiver? Make sure the document lists either the specific amount and work for which payment is being issued and rights are being waived, or specifically excludes retainage with language stating such.
In summary - read the fine print and pay close attention to the language used in the waiver! Make sure you understand exactly what you are certifying and what you are giving up before putting your name on the dotted line. It's best practice to keep your eyes peeled for these lien waiver red flags.
The post Lien Waiver Red Flags appeared first on zlien.
Getting paid is truly the only thing that keeps a business open. There are a lot of tips and tricks that are suggested to keep the cash flowing, however, they are not all sound advice. Especially in the construction industry where invoicing and payment methods can be more complicated, there are some stubborn construction payment myths that need debunking.
Myth #1: You can worry about payment terms after the job is done
This construction payment myth is extremely unhelpful to gaining cash flow. If you are bidding on a job, acceptable payment terms should be worded in your bid. Without it, you will end up stuck in a job with unfair payment terms and nothing to leverage with. Not including payment terms up front will leave you with a finished job and no cash to show for it.
Myth #2: Waving lien rights without consideration is unenforceable
In many states, this is completely untrue. Depending on the jurisdiction, lien rights can be waived through a contract without any additional consideration. Your first red flag should be if a customer wants to waive lien rights. There is usually a reason, and that reason will affect your cash flow.
Myth #3: Don’t cause trouble or offend the customer
Although at first glance this seems like a perfectly acceptable motto to live by, it all comes in moderation. If there are problems on the site and the customer is not aware of them, they may withhold payment because they were not told sooner. Always keep the customer aware of issues and address them in a timely manner. Don’t worry about offending the customer when asking them to sign off on your payment terms or checking into their credit history. These are all crucial factors to take into consideration for your accounts receivable.
Myth #4: There is no difference between “pay-when-paid” and “pay-if-paid”
There is a huge difference between these two phrases that can ultimately affect whether you get paid on time or paid at all. Pay-when-paid, in most jurisdictions, means that there is an obligation to pay in a reasonable amount of time. However, pay-if-paid means that if payment to the contractor is not received by the owner, timing and entitlement to your payment can be pushed back.
Myth #5: Accounting software is too expensive to help with cash flow
There are a lot of different accounting software choices on the market that can help manage your accounts receivable, and many of these range in price ranges that are extremely affordable. These accounts receivable applications can send invoices to customers and keep track of your communications with them to be sure you haven’t missed anything. Using workflows, you can see who is the furthest behind on payments and make them the top priority of your call list. With all of the information in one place, invoice disputes are reduced in number and resolved quickly.
Although these construction payment myths seem harmless, they can actually hurt your cash flow and your business in the long run. Putting best accounts receivable practices in place can ensure that you are always getting paid on your terms and not getting duped by sneaky customers. To learn more about creating a world class credit policy and collections action plan, read this white paper from Anytime Collect, an industry leading accounts receivable management software.
The post The Top 5 Construction Payment Myths Debunked appeared first on zlien.
If you're a credit professional, you're in the business of managing your company's receivables. But, what does this even mean? And how do you make an impact?
These are topics we discuss in zlien's 6 Weeks to Success as a Credit Professional email course. This article constitutes the second lesson in the course. Sign up to get information on credit management written by experts delivered directly to your inbox.
The next 4 lessons in the credit management course will cover critical aspects of managing the A/R process. Understanding these 4 concepts and adopting policies to implement these ideas will enable you to eliminate all of your company's A/R problems. Seriously.
The 4 Key Areas Are:
- Credit Policies
- Credit Applications
- Lien Policies
- Collection Policies
These 4 areas are all part of a broader topic: receivables management. So let's talk about receivables management before we dive into the specifics.
The construction industry presents unique challenges to finance and credit professionals. There is much more to minimizing risk and securing payment in construction than simply traditional credit risk assessment.
This lesson will broadly review the 4 key areas to manage receivables in the construction industry, with a specific focus on how it all ties together for the construction finance and credit professional. Avoid accounts receivable problems by implementing the policies discussed below.
Key Area 1: Credit Policies
Let's start here: good accounts receivable management boils down to your credit policy.
Everyone in the construction and building materials supply industries should have a clear and well thought-out credit policy. While this term may seem fancy at first, it’s a simple concept.
A credit policy is just a set of written guidelines to set:
- Customer qualification criteria
- The terms and conditions for supplying goods [or services] on credit
- Procedure for making collections
- Steps to be taken in the case of customer delinquency
(These steps are borrowed from a definition available at BusinessDictionary.com.)
As you can see, the "credit policy" actually incorporates all 4 key areas of managing receivables. Nevertheless, for the purposes of this course, we are separating credit applications, lien policies, and collection policies from the overall credit policy to give each a more comprehensive discussion.
The next lesson will discussing creating (or improving) your company's credit policy.
Key Area 2: Credit Applications
The first thing a credit policy must accomplish is to establish the "customer qualification criteria" and the "terms and conditions for supplying goods (or services) on credit."
While the credit policy sets forth these criteria and terms, it is the credit application that collects the customer data, enabling the organization to figure out how the customer fits into the policy.
The cornerstones of a credit application include:
- Getting the information you need from the potential customer
- Getting legal permission to check the customer's credit
- Having the right people sign the document (clearly)
- Incorporating important terms
- Acquiring a personal guarantee, as per your credit policy
As you can see, the credit application is a pretty dense endeavor. The lesson on credit applications will dig into each of these issues.
Key Area 3: Lien Policies
While the construction credit professional must put a construction "twist" on the credit policy, the credit application, and the collection policy, the lien policy is truly unique to the industry.
The lien policy is probably the most overlooked of the bunch, but also probably the one that could make the biggest bottom line impact to organizations.
Lien and bond claim rights are a huge asset for the construction and building material supply industries. These remedies are effective even when they go unused, as it's proven that simply sending preliminary notice to protect claim rights has a powerful impact on a company's DSOs and underlying collection rates.
The lesson on the lien policy is important. It will guide you through creating or improving your organization's critical lien policy.
Key Area 4: Collection Policies
The "collection policy" is not simply getting an unpaid and default account into the hands of a competent collector. The collections policy is the entire life-cycle of your invoice. Your collections policy, in other words, will touch 100% of your company's revenue.
The collection policy will address all of these issues:
- How are invoices or payment applications transmitted to the customer?
- What actions are taken when an invoice isn't paid on or before the due date?
- What actions are taken after an invoice goes into default status?
- When are accounts escalated into a collector's or attorney's control?
This is a huge part of successful accounts receivable management.
The work you do at the front end of a customer relationship reduces the percentage of accounts that will age or default...but if you don't clean up the aging and default receivables, you'll get suffocated by negative cash flows and write-offs.
The lesson on collection policies will help you leverage technology, terms, behaviors, and industry intelligence to optimize your collections funnel and get paid on every account.
Are you excited?
Are you excited and ready to move forward? This is fun stuff. This is the life blood of every organization. And, if you master these 4 key areas of managing receivables, you can make an impact on your organization that can mean millions or billions of dollars.
zlien's platform makes lien rights and credit management easy. Click the button below to talk to an expert and learn more about how you can jumpstart the process of streamlining your accounts receivable.
This was lesson 2 of our 12 step course on credit management
Want to review the last lesson on how to be a great credit manager? Click here.
Want to skip ahead to the next credit management course that covers credit policies? Click here.
The post 4 Key Concepts to Eliminate Accounts Receivable Problems appeared first on zlien.
Although we would all like to blame our customers' late payments wholly on them, it may be more productive to take a good internal look at construction invoice collection processes. This is especially true if it seems like late payments are becoming a trend among your customers. There is rarely a time when invoicing customers is fun, so sometimes we tend to rush through it. However, when construction invoice collection is made a rush job, we often forget vital information that could have gotten us paid faster.
There are some simple steps you can take to make sure your construction invoice collection processes are in top shape to get you paid faster.
1. Include Details
Unlike some other industries where you are simply billing for one good purchased, the construction industry has quite a few services that are often included in one invoice. It’s important to write out in detail on the invoice everything for which you are billing the client, from materials used to time spent on the project. The more detailed the invoice, the less likely a client will come back with a dispute.
2. Take Notes
When a client comes to you with a project in mind, make sure you take note of everything they’re saying – in writing. Often, a client has an idea in their mind of what they expect the project to look like when it is finished without fully conveying their vision and clearly explaining what they mean. Unfortunately, this frequently leads to an unhappy client who refuses to pay for all of the time, effort, and money you put into the project. Taking notes of what the client originally said they wanted can ensure that when you get around to the construction invoice collection process, you can settle your disputes faster.
3. Indicate How to Pay
This may seem like it should be extremely clear to clients, however, most people need the directions laid out very clearly. Your invoice should indicate to the client how to pay you, whether it is through a customer payment portal or via check. The deadline for payment should also be explicitly noted. Having a clear and visible due date is one of the most overlooked construction invoice collection mistakes, but the most easily avoidable.
4. Send Invoices Immediately
Don’t wait until a week before the payment is due to send out the invoice to a client. Have the invoice ready and waiting for when the project is finished and make sure it is directly delivered to the client. The longer you wait, the more likely your client won’t see the need to pay you in a timely fashion.
Some easy tweaks to your construction invoice collection process may be all you need to get paid faster. You could really ramp up your invoice collections by adding an automated invoice collection software, which can put most of these simple steps on auto-pilot for your business. By simply keeping more organized, the construction invoice collections process can become a breeze.
Interested in learning more about invoice collections and accounts receivable best practices? Visit Anytime Collect’s Resource Center for free white papers, case studies and more.
The post Proactive Practices for Construction Invoice Collection appeared first on zlien.