This is a guest post from Anytime Collect, A/R Credit & Collections leaders.
Considering the tiny margins most companies operate on in the construction industry, making sure you collect the money owed to you is critical to ongoing success, but it’s not easy! While it may seem like common sense that the longer an invoice goes unpaid, the less likely it is to ever be paid, you may be shocked to know how true that statement really is!
The September 2014 edition of the Atradius Payment Practices Barometer found that over half of the value of B2B receivables (52%) more than 90 days overdue are eventually written off as uncollectable. In other words, if you’re not getting paid in 90 days, you have less than a 50 percent chance of collecting what is owed to you.
If you’re watching your bad debt write offs increase or are struggle to reduce days sales outstanding, it could be due to invisible payment barriers you are unknowingly constructing that make is harder for your customers to pay you on time (even when they want to!)
Here are some of 3 most common payment barriers in the construction industry and what you can do to break them down.
1. Slow Invoicing Processes
Slow invoicing is one of the biggest underlying causes of slow payment- if you did the work, don’t wait to ask for the money! This of course is easier said than done because, as you know, priorities in a construction business change by the hour.
Even though you may have the best intentions of getting invoices out right away it’s easy for other things to crop up and call you away from that particular task. When this happens it’s easy to lose track of the invoice and then once you remember, the invoice may be only days from its due date (or even past it) by the time the customer gets it; leaving them little time to pay you within terms, especially if they have questions or concerns about the invoice.
You can combat this problem by replacing time consuming and paper-based invoicing processes with invoice billing software. This will allow you to streamline the invoicing process so you can juggle it easily with other critical tasks. Furthermore you will be able to send the invoice electronically, getting the invoice to your customer instantly so you don’t have to wait days for the invoice to make it to the customer so they can begin the payment process.
2. Incorrect and Unprofessional Invoicing Practices
According to the same Payment Practices Barometer mentioned above, 29% of late invoices are due to problems with the invoice itself. Sending the invoice promptly is not the only invoicing barrier you have to break down, you must also ensure your invoice clear, concise, professional, and includes all of the information your customer needs to submit payment.
Always make sure your invoice includes the following information:
- Your company name, logo, address, phone number, and fax number
- Your name and contact information (use a department email if possible, not a personal one. for example, email@example.com instead of Alex@company.com)
- The customer’s company information such as company name, address, phone number, mailing address. Also be sure to include the name of the A/P employee you have been working with and their contact information. This is especially important for larger customers in case the invoice ends up on the wrong desk.
- Necessary payment information such as:
- Itemized list of services/products
- Invoice number
- PO number/job number
- Amount due and due date and payment terms
- Note any discounts given or consequences for late payment you have discussed.
- Include a Remit to address.
- Supporting documentation such as a signed receiving document (proof of delivery) or approved timesheets. This will be different for every customer so be sure to ask about their requirements before starting work
From a design standpoint always make sure that your invoices are well organized and easy to read. Remember to always check spelling, grammar, spacing, and ensure all of the information is complete and correct- you would be surprised at what a small mistake can do to your likelihood of getting paid within terms. In fact, an article on CFO.com indicated that 49% of invoice disputes and late payment are caused by Invalid or incorrect purchase order information!
3. Complex Payment Processes
the Payment Practices Barometer also found that 28% of late payments are due to complex payment procedures. Whether the complexities are coming from your side of the invoice or the customers, the more difficult it is for a customer to submit payment, the longer it will take them to do it! Here are a couple examples of complex payment procedures and what you can do to simplify them.
- From the customer’s perspective, you may not be giving them what they need to pay you. Some companies, especially larger ones, may require certain information or formatting before they can process payment. If you’re not giving them this information or taking care to provide it in the right format, you’re creating more work for their A/P department and drawing out the payment process. If the A/P clerk has to get in touch with you for more information or take the time to reformat your invoice, it’s going to take them much longer to pay you and they will likely pay other invoices first. Eliminate these extra steps for them by identify such customers and using a customer-specific invoice template to make their lives (and yours) a bit easier so they can quickly and easily submit payment.
- From your side of the invoice if you only allow payments by check, you’re making it more difficult since your customers will need to take the time to cut the check, address and envelope, and stick it in the mail. Then you have to wait for it to get to you. If you allow customers to call in with credit card information you’re making things a little easier, but then you get stuck with epic games of phone-tag during business hours.One way to completely eliminate these issues is to use invoice billing software with online bill pay capabilities so you can quickly send your customers a secure link to their invoice(s) online and allow them to easily pay 24/7 via credit card or ACH.
Collecting invoices in the construction industry is hard, and the truth of the matter is that even if you break down each and every one of the payment barriers above, you may still have trouble getting paid on time. Don’t worry, there are plenty of other accounts receivable best practices you can implement to improve your invoice collection performance; here are a few of our top resources to help you get paid faster:
- 6 Steps to Developing a World Class Business Credit Policy & Collections Action Plan
- Best Practices in Business Credit Management
- How Many Employees Do I Need For Effective Accounts Receivable Management?