How to Quit Being the "Unpaid" Builder and Get Paid Every Time

So your building client has quit paying you! And you stand to lose thousands!

And the media says the construction environment is improving! Don’t they know that non-paying clients make the life of small builders exasperating - in any environment?  

I suspect every builder, who has been in business for a while, has a “bad paying client” story to tell.

A dream job to begin with - large, challenging and profitable - turns sour when your client questions every invoice item, quibbles over your margins and refuses to pay some things.  Your overdraft is growing and you fear receivership.

But it need not be like this - when you set-up your building agreements carefully.

In this article I outline three things you need to have in your building agreements and one thing you should exclude, to help make non-paying clients history.

Three Things to Include:

1. State clearly when invoices are to be paid

Check to ensure that your payment terms are clear.  Set out your invoicing arrangements and payment expectations.

If your normal process is weekly invoicing for all costs incurred in the preceding week, then make sure your agreement specifies this. Include how the invoice will be delivered and when payment is due.

For example, “Weekly invoices will be created at the end of each week (normally a Friday) and emailed by close of business. Invoices will include labour, materials and subcontractor costs incurred in the seven days up to and including the invoiced day. Payment is made by direct deposit within 3 calendar days.”

2. State your right to stop work

It is your right to stop work (and remove materials) if a progress payment is not made on time.  While this is a huge interruption to your work schedule, it is much less disruptive that not being paid!

An example, “Should invoices not be paid by the due time, work on your project will halt and materials not yet paid for may be removed.”

3. Include collections costs in outstanding debts

Make sure you state that if debt recovery becomes necessary, any costs incurred will be added to the outstanding payments.

One Thing to Exclude

Don’t add interest payments to outstanding invoices

When you do (e.g. interest of 1.5% per month on any outstanding balance), you are indicating that is is OK for your client to use you as a source of credit, and not pay on time!

It may appear nice to get additional interest, but it will not offset the cash crisis late payment cause.

A Final Word

Be polite

In any conversation with clients it is most important that you stay in control. Do not get allow yourself to get angry. Remain respectful and calm. If you are tempted to lose your cool, email rather than phone - but read your email several times to make sure your tone is friendly.

Takeaway

While most standard building association agreements are excellent, they may need adjustment to suit your particular payment terms. So, having your lawyer check these is a very worthwhile investment and may save you thousands of dollars of lost income.

Your Comments

How have you handled non-paying building clients?  What lessons have you learned from hard experience? Post your comments below.

Graeme

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