Today’s guest post looks at five ways you can reduce late payments from clients, particularly in today’s challenging times. By Sina Sadeghpour.
As the economic strain caused by the coronavirus continues to spread further, many of the top residential builders, trade contractors and leading commercial interior construction businesses remain concerned about the future. With all the economic uncertainty we’re currently facing, receiving timely payments from clients is crucial, now more than ever before.
While businesses need cash to stay afloat, customers are facing their own cash flow issues and are asking for more time to pay their invoices. Fortunately for business owners, there are five safety precautions you can take to reduce the risk of late payments in these difficult times.
1. Clearly Define The Contract
Don’t start working on a project until both parties understand everything on the contract. Extensions of time, variations and progress payments are common areas that cause disputes. As such, ensure that your client understands what they’re signing up for.
It’s again wise that you have proof that a client can pay you. For clients paying with their own funds, they should provide evidence that they own a security account and that it has enough funds to pay for your services. However, if they’re getting funded by a lending body, consider asking them to show evidence of sufficient funds from their lending institution.
2. Variations Should Be In Writing
As mentioned earlier, variations are a common area of dispute. Now, apart from a client proving that they can pay you, you should also have evidence of any variations. Don’t rely on verbal agreements as this is where many builders have gone wrong in the past.
Instead document any variations on paper and ensure that it is signed by both parties before your start any of the work.
Furthermore, you should start to claim any variations as soon as they’re completed rather than wait to claim all the variations at once at the end of the project. This way it is fresh in the clients mind.
3. Set A Fair Progress Payment Schedule
Progress payments will help minimise risks and disputes. Plus, it’ll also be easier for your client as they are forewarned and the payments are in small instalments at specific stages.
Prior to contract signing, it’s wise to discuss what your proposed progress payment schedule is, make sure to clearly outline and document the stages at which you expect to be paid and the exact amount per instalment. Take responsibility in ensuring your client completely understands this and you could avoid nasty disputes with your clients later on.
4. Don’t Neglect The Contract
A contract is a powerful tool yet many businesses owners fail to correctly utilise them to protect themselves. Ensure you speak with your lawyer and review any shortcomings in your contract which leave you vulnerable.
Many experts of construction law advise that at a minimum, you ensure your construction contract includes the clauses listed below:
- Termination Clause:
- Payment Clause:
- Dispute Resolution Clause
Ensure you speak with your legal professional for the best advice.
5. Have A Backup Plan
Most contracts include a process for practical completion where you and your client inspect the project to ensure there are no defects. Once it is determined that you’ve completed the work as agreed and there are no defects, the client pays your last progress claim.
Usually, clients pay the final amount if everything is as expected. However, this isn’t always the case.
Therefore, as a last resort you could consider withholding your compliance certificates and/or keys until they’ve fulfilled their part of the deal.
Take away
Remember, you’re responsible for not only your own livelihood but also your employees and loved ones at home, so you have to put your business first.
Whether you’re a small team of trade contractors, a local commercial interior design company, or a large scale residential builder, chasing after payments from clients isn’t easy. However, by following these five simple tips you can greatly reduce the risks involved with late payments.
About the author: Sina Sadeghpour is Director of ImpeccaBuild. Providing interior fit-outs designed for the 21st Century, ImpeccaBuild combines stunning aesthetics with highly functional fit-outs. Passionate about designing projects that are innovative, sustainable and delivering excellent value. From project management through to design and fitout, ImpeccaBuild provides a complete end-to-end interior fitout solution for all industries.
