This Podcast Is Episode Number 415, And It's About Proven Practices To Collect Construction Client Payments Effectively

The larger your construction business grows, the more likely you could end up operating as a bank without the hundreds of ways to generate revenues from fee income and interest calculation that banks use. The most popular method designed by investors and developers and shrewd business people who understand the concept of divide and conquer is for contractors to get little or no down payment for a construction project, do all the work, including change orders, and then try to collect their money.

The least popular method is getting work orders, contracts signed, and deposit checks before starting the project because most of us were conditioned from childhood through adulthood and beyond not to ask for money. Some construction company owners are gung-ho about doing the work and yet are embarrassed about asking for money.

Here are the best construction client payment practices that worked for our company and clients:

1.Separate the good from the bad.

Not everyone who never pays you is a bad person. Sometimes things happen which are beyond their control.

We have clients who have experienced situations beyond their control in all of our companies, and when it is legitimate, we have been known to issue a letter stating the debt is canceled, and they owe us nothing. Oddly enough, most of them paid the debt years later, and all of them were very appreciative that we treated them with courtesy and respect.

Some people are just bad, like Bad Bookkeepers, and I would rather be the person who was taken advantage of than the one who took advantage. Do whatever you think is within reason to collect the debt and no more.

2. Offer payment options.

You are not a bank, so never, ever use your high-interest credit cards and supplier accounts to provide financing to your customers in the form of offering a lot of labor, material, subcontractors, and rental equipment, hoping to get paid later on down the road.

You can offer to finance by getting a merchant account setup at a bank or credit union that will contribute to loan your construction client's money for small projects. Your construction client signs paperwork with the lender; you do the work and get paid.

Accepting credit cards is another way to offer to finance, and it is like having an "Electronic Armored Car" on standby 24 hours a day, seven days a week, ready to automatically take your money to your bank. If your QuickBooks is set up correctly, an invoice can be emailed to your customer or clients, and when they open it, there is an option for them to pay by credit card immediately.

Ask and receive job deposits and progress payments so that you are always using "Other People's Money" (O.P.M.) to pay for the labor, material, subcontractors, rental equipment, and overhead of their construction projects.

3.The right mindset.

Final thoughts