If you’re dealing with slow-paying customers, you’re not alone. Chasing down customers for payment shouldn’t be the norm, yet for most subcontractors and suppliers, it is.
In fact, a recent industry survey shows that 80% of companies say they spend a significant portion of their workweek chasing down payments.
To put an end to late payments, you first need to understand why they’re happening. Here are the top four reasons you might be getting paid slowly — or downright burned — on jobs, and what you can do to avoid payment problems that are hurting your business.
Reason #1: Your customers don’t know that you were on a job
One reason you might be dealing with slow payment is because your customers (or their customers higher on the paychain) aren’t even aware that you worked on a job. By sending a preliminary notice at the beginning of a job, you are alerting your customers of who you are, the work you’ll do, and other details that make it super clear that you should receive payment.
Whether or not you’re required to send these notices on every job, they are a key part of speeding up the pay cycle by making it easy for people to pay you.
Don Myrick, the general manager at Texas First Rentals, started sending notices regularly through Levelset. He thought he would get a lot of pushback from his customers, but the opposite happened — and his company started getting paid faster.
“What happened is that we got moved to the top of the list. Customers are calling us and saying, ‘Hey, we’ve got your notice, we’d like to pay you.’ So where we had to call them, they are now calling us. It has reduced our DSO [days sales outstanding], and we believe it will reduce our bad debt, because we’re not having to fight every contractor for payment every month,” said Don.
Reason #2: You don’t look as professional as you are
If you want your customers to take you seriously and pay you on time, it’s important to have an organized accounts receivable process and sending lien rights paperwork. A consistent process makes it easy for your customers to pay you, and it shows that you know your lien rights and your business knows what steps to take to get paid.
Concrete Related Products (CRP), a rebar supplier in Texas, created a regular process for sending out preliminary notices, and they immediately began receiving payments faster.
“We tried sending notices with Levelset for about a month, and the change was immediate. I got responses from customers that would ignore my phone calls. We looked more official to the customers, so they couldn’t ignore us any more,” said Wendy Hilton, the accounts receivable manager at CRP.
Once they had a process in place, they looked more professional to their customers which created a sense of trust and ultimately cut their payment collection time in half.
Reason #3: You are reactive instead of proactive
If you know that slow payment is a common problem in your industry, then why wait until the payment problems occur to take action?
By talking to your customers early on in the payment process, you can clear up confusion and — circling back to reason number one — make sure everyone on the job knows who you are and what work or materials you’re providing.
Bryan Daughtry, the owner of Dry Patrol of Central Ohio, often dealt with slow paying or non-paying customers, and he knew it was because his business wasn’t being proactive.
“Everything was so reactionary because we never filed the lien unless we absolutely had to, so it was usually in the ninth hour. There may have been a little more of a surprise factor then, because there wasn’t as much proactive communication setting the expectations up front with the customer,” Bryan explained.
Once Bryan set expectations with his customers from the start and sent notices to communicate that his business would take the necessary steps to collect payment, his payment issues drastically decreased.
“The biggest difference is our outstanding AR cycle — the lifecycle probably being anywhere from 60 to 90 days down to 17 days now. If anyone can get to 30 days, they’re ecstatic…so [for us] to get it from 90 days down to 17, it has done incredible things for business and for my well-being,” said Bryan.
Reason #4: You haven’t filed a lien when unpaid
If you have a consistent process for getting paid, you’re sending notices on time, and you’re proactively communicating with your customers, it’s very unlikely that you’ll continue to be left with empty pockets after completing work.
However, if you do have a slow payment issue and your lien rights are protected, then you can take the final step to get paid by filing a lien. If you’re getting burned on a job, filing a mechanics lien is one of the most powerful ways to secure payment because it disrupts the flow of funds on the project.
Ellie Holman, the office administrator at Holman Inc., filed a lien in a situation where their company was owed $9,000.
“If we had not filed that lien, this guy would’ve never paid us. So, because we had our lien filed, it held up the whole project and everyone getting paid. I had their banks calling me and we got it worked out. We got our money,” Ellie explained.
It’s not often that Ellie has to file a lien because she protects her payments by sending preliminary notices, and she communicates with her customers throughout the process. However, when she does need to file a lien, it helps her company get paid.
Ready to stop getting stiffed on your jobs?
That’s a rhetorical question, because if you’re dealing with slow or no pay, you definitely want the pain to stop. Levelset partners with subcontractors and suppliers to help them get paid by sending notices, filing liens, and creating a simple process for protecting lien rights.
If you want to learn more about what it looks like to protect your payments, schedule a call with our team today.
Start collecting payments faster
Schedule a call with our team to learn how you can get paid faster with Levelset.