Unfortunately, late payment continues to be a problem in the construction industry. Lee Murphy, founder of Pandle, the cloud bookkeeping software designed specifically for small businesses and the self-employed, talks to RCI about how there are online tools available to support you.
It is an all too common story among roofers: upon completion of a job to a high standard you send out an invoice only for it to be left unpaid, perhaps for months. While you wait for customers to pay up your own bills start mounting, creating cash-flow problems that could threaten the success of your business.
If you have had experience with late payers, private or commercial, you are not alone. The Federation of Small Businesses estimates that 50,000 small businesses are forced to close every year – such is the effect of unpaid bills.
While there are government and industry-wide initiatives to encourage prompt payments, by getting to grips with your finances, there is much you can do to help yourself. By managing your customers in subtle ways, such as sending payment reminder notices, you can make a significant difference to the health of your company finances.
I’ve drawn up a list of strategies below that will help you encourage customers to pay up and on time.
Be clear about your payment policy
It is essential that you are clear and up-front about your payments policy. It will be the same for everyone, so a standard note on your estimates, or a link to an online page.
If you send a letter of appointment or contract, make sure it is mentioned on this. If you ask customers to sign the document, it is an enforceable contract that you can rely upon should matters take a turn for the worse.
As well as details of what your costs cover, the policy should also inform customers of your payment terms and penalties for late payers, or – to entice early payment – offer discounts to customers who pay on time.
How long do you allow customers to pay you? If your business is using too many net days – that is the number of days, you wait for payment – then you could be storing up trouble for later.
Consider how much time you allow customers to pay you; it may be worth considering reducing this to encourage earlier payment. It may come as no surprise that the longer a customer waits to pay the less likely it is that they will.
Dealing with larger contractors could be more challenging. In July, trade body Build UK published pay performance details of its 24 main contractors, revealing that not one paid supply chain invoices within 30 days.
Accepting a larger contract might seem appealing as they can be profitable, but make sure you work out the impact on your cash flow before agreeing to work. Can you afford to wait 66 days for payment and what impact will it have on your ability to move on to the next job?
Most businesses that go insolvent are profitable, they just don’t have the money in the bank to pay the bills. If the payment terms are bad and will put you under pressure, think about whether it is worth the risk.
Not all late payments are deliberate. Sometimes customers simply forget, or the bill has been passed to the wrong person. It is up to you to keep track of who owes you what and when, and that can be tough after a long day.
The good news is there are plenty of online tools available to support you in your efforts, many of which come free of charge. Pandle, for instance, can automate the process of chasing and reminding customers for you, something that will have an immediate impact on reducing the number of debtors you have.
Invoicing customers and making sure they have all the information needed to be able to pay you is a no-brainer.
What if the customer still doesn’t pay?
If you have people who won’t pay, then lots of phone calls and emails are the starting point –and clearly turning up at their house for domestic clients works well.
You may want to refuse any future work until the bill is settled. After that, it is legal channels, which sadly can be slow moving and involve more cost.
Remember to stay professional. You trade on your reputation so being confrontational with customers could be damaging as well as aggravating for you.
Making sure you get paid on time is essential for the success of your business.
By automating the system with the cheap software available and maybe giving the chasing to others you will find more time to focus on making your business a success, with more bills being paid earlier, and that is good for you and your customers.