Construction Update

If You Build It, Will They Pay?

Is there a worse investment than lending money for free? Probably not — except working for free.

Some construction firms end up doing both — by failing to collect what they’re owed. In today’s environment of aggressive bidding and thinner margins, uncollected accounts can be costly. And these very market conditions may push contractors toward new customers with new and unfamiliar payment routines.

Here are some straightforward steps you can take to bring collections under control.

Know your rights. The right to payment rests upon lien laws, for which we can thank our colonial forebears. An unpaid contractor can cloud an owner’s title and even seize property. But your opportunity may be short — miss the deadline by one day, and you’ve lost your lien rights. So track invoices carefully, and as the filing deadline approaches, don’t hesitate.

Know your customer. Are your new customers reliable? Don’t be surprised after the fact: Check credit, litigation and lien history carefully. Subcontractors should know about a general contractor’s reputation and ability to collect from an owner.

Agree on the rules ahead of time. Build in protection with a detailed pre-construction meeting with the owner, the contractor and the financing source. Resolve payment terms, documentation requirements and other issues that might delay payment. Retainage is standard on construction jobs, but you may be able to negotiate terms.

Bill promptly and precisely. For example, understand your customer’s payment cycles and bill accordingly. Don’t suffer a 30-day delay because your invoice arrived after your customer’s processing deadline.

Manage change orders aggressively. Resist pressure to act on verbal agreements or work tickets; instead, obtain signed, specific documents. And don’t let COs pile up, or you’ll have little leverage when your customer insists on rolling them into post-job negotiations.

A well-run collections plan makes a significant contribution to positive cash flow. To explore some ideas, please contact our firm.

For more information about our services to the construction industry, Contact:
Mark Lund, Parter-in-Charge of Construction Services at 713.297.6907.

The articles in this newsletter are general in nature and are not a substitute for accounting, legal, or other professional services. We assume no liability for the reader's reliance on this information. Before implementing any of the ideas contained in this publication, consult a professional advisor to determine whether they apply to your unique circumstances.