How much money is your construction or building services company still waiting to receive for work already done? An estimate from factoring firm Fundbox states clients owe $825 billion in unpaid invoices to U.S. small businesses alone. Per small business, that equates to $84,000 for products and services delivered, but not paid for. Minimizing unpaid invoices by achieving timely payment depends on the following:
- Your client’s ability and predisposition to pay on time
- Speedy, accurate construction accounting invoicing
- Clarity of invoices and ease of acceptance by your client
- The relationship between your client and your company
Let’s look at each item in turn.
Proper Preparation Prevents Poor Payment
Ensuring timely invoice payment starts well before you send out the invoice. Your client’s track record of paying on time and credit rating are important factors: if feasible, you can pick your clients according to their ability and predisposition to pay on time. Alternatively, you can get a guarantee of payment by requiring a deposit or a retainer before starting a project or moving to the next phase of a project. This demonstrates to your clients that they are dealing with a professional organization (your company) that knows what its time and effort are worth, and that wants to lay the foundations for good work and a mutually beneficial relationship. And psychologically, a client that has made an upfront payment for a project or services has made a greater commitment to pay following and final invoices too.
Speedy, Accurate Invoicing Construction Invoicing Software
Good invoicing should be a reliable, streamlined process with clear steps and results. This process is triggered by the start of a project or a service agreement, and by different phases of projects for clients, helping you to:
- Get your invoices out on time—No matter how busy your company gets, timely invoicing is always a priority. Good construction accounting software lets you track invoices and payments easily. Remember also that the smaller the gap between providing your services and sending out your invoice, the better your chances are of being paid on time, because your work is still present in the customer’s mind. If you invoice a client on a continuing basis, keep to a regular invoicing schedule, for example, the first Monday of each month.
- Speed reception and payment—By preferring email to letter mail (aka “snail mail” for obvious reasons) and online payment to checks, you could even see invoicing and payment cycles completing within the same day. To make things even easier, web-based portals are available to effect instant payments.
- Invoice accurately—Make sure project teams and service representatives report all time and expenses. Project management, purchasing and inventory management software linked to construction accounting software lets information flow end to end, and helps prevent billable time and effort from falling through any cracks.
Clarity and Ease of Acceptance
The easier your invoice is for your client to understand and accept, the more chance you have of timely payment, and the less risk of dispute or delays.
- Include invoicing information required by your client. This may be a purchase order (PO) number or specific line items, for instance. It may also be important to include the name of the contact responsible for settling the invoice.
- Specify possible payment options. Keep options easy and flexible for clients, while steering clear of any that might pose a problem, such as payment by check (delays, “our check is in the mail to you,” bounced checks, etc.)
- Be clear about payment deadlines. If you use “net” terms, make sure your client knows what you mean. Otherwise, use clear instructions like “Payment within 10 days of the date of the invoice.”
- Give clear indications about late payment fees and how they are applied. By U.S. law, you can—at your option—charge interest on late payments.
- Add information about any incentives (like a discount) for early payment, if you choose to use these.
- Say “Please” and “Thank you.” Include a phrase like “Please pay by the date indicated” or “Thank you for your business.” Surprising though it might seem, this can accelerate payment by five percent, according to statistics from software/service provider FreshBooks.
How will you know if your client agrees with all the above? Ask! When you make out the invoice (or the model you will be reusing for recurrent billing), ask the client for any additional information. After you have sent the invoice, contact the client again to check.
Timely Payments and Good Relationships
Finally, the better you know and get on with your client, the more likely you are to be paid on time. Phone calls can help build such a relationship in a friendly and professional way. They are also more effective than emails when following up after an invoice has been sent to make sure it has been received, read, and scheduled for action. Timely payments and good client relationships form a virtuous circle. With the right approach to Construction invoicing, your company can be assured of both. We offer the best Construction Invoicing Software in town, contact us for a Free Demo!