In what ways can construction companies get paid quicker
Whether industries have a good situation regarding payment problems or a bad one, where there is an issue acknowledged and visible; a lot of invoices often end up being paid. How and when they are being paid is a question that is not answered easily.
It is often easy to complain about payments in the construction industry. After all, they are obvious thanks to the plethora of vendors plus a construction company’s workforce dedicated to helping construction companies get the needed amount of money they have earned.
How crucial is it to get paid on time?
Regardless of whatever kind of business one runs, getting paid on time is always crucial. It does make sense that a large amount of effort and time is focused on ensuring timely payments take place. Construction companies can optimize their cash flow. Two things in accounts receivable and collections management should be duly considered
- Invoices should be paid on time.
- Reducing outstanding invoices written off as uncollectible.
These two are somehow separate objectives. Quantum analysis experts reveal that they are however essentially linked. When an invoice is unpaid for a long time, it can get written off as bad debt. This can be obvious. However, the extent of the correlation and its appearance are surprising.
Construction company owners revealed that in terms of B2B receivables, 52% of them overdue beyond 90 days were written off as uncollectible bad debt.
Getting paid and other associated cash flow issues in the construction industry
Both areas of concern mentioned above (like getting paid on time, and getting paid) are directly related to the problems plaguing the construction industry. Cash flows are a problem the industry faces. It has trickle-down effects on both construction companies and their projects.
Maintaining a robust and sufficient cash flow is always important. The construction industry holds that in high importance. A lot of project participants are required to float significant expenses for projects.
Difficulty in collecting outstanding invoices has always been quite a problem. A lot of industry executives and company owners revealed almost 43% of receivables were usually due past the collection date by quite a margin.
There are many reasons that construction companies’ invoices can be either unpaid or paid either slowly or late. The complications of processing payments in the construction industry have made the issue a vicious cycle. In short, the industry and its associated companies are stuck in circular debt.
The money also goes through many parties. Then the complexity of payments adds up to the woes. The obligation of exchanging legal documents on each payment adds more fuel to the fire. Also, combining them with more factors makes payments in the construction industry a messy thing to handle.
Despite the inherent risks, some steps can counter these challenges.
Optimizing cash flow and getting paid – the steps and tactics involved
The general rules for reducing credit and payment default risk are understood. However, many of the traditional practices (credit checks, generalized collections departments, and vice versa) are not simple enough in the construction industry.
Construction companies have specific financial tools developed for them. This helps them manage their budgets efficiently. They can also help them secure payments. Moreover, using security rights such as mechanics liens and bond claims works quite well to aid a construction company’s cash flow.
Secure credit extensions are often paid on time in comparison to insecure extensions. Remaining in a secure position helps a construction company maintain its lien rights for projects. Applicable parties can understand it by sending a preliminary notice. This usually results in parties getting paid on time.
The construction industry has unique challenges and circumstances. Everyone supplying construction companies with equipment, labor, and materials has the right to guarantee payment in virtual terms. They can do that via either bond claims or mechanics liens. There is a condition that they should follow the needed steps.
Moreover, Project Advisory proves the act of providing the required notices is necessary. It gives a company’s invoices a nature of urgency until legal action is taken. This is for the party making the payments. Late payments become unnecessary provided the following steps are diligently followed:
- Sending preliminary notices to all parties involved.
- If required, Sending notice of intent to lien works.
- Filing a bond claim or a lien whenever needed.
- Sending notice of intent of foreclosure whenever required.
- Starting foreclosure or an enforcement lawsuit.
Conclusion
Construction companies should be on their toes. They need to be active when it comes to collecting payments. The clientele of construction companies often delay payments due to a multitude of reasons and a large number of them aren’t reasonable.
Construction companies should not overlook anything at all. They should keep everything in check and balance. They also should not hesitate to ask for payments on time.