There’s a battle for cash in construction during COVID-19, and those in charge of accounts receivables – credit managers, AR specialists, and office managers – are on the front lines. Extraordinary times call for extraordinary measures – but what kinds of measures should you be taking during COVID-19? Here are some best practices from around the country: What credit and AR departments in other construction companies are doing to manage their receivables, and make sure their company gets paid every dollar they earn.
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Send notices earlier – and on every construction project
Relationships are important in construction. Everyone has at least a handful of faithful customers that they’ve worked with for years. You trust them to coordinate the job well and pay your invoices on time. You’ve never felt the need to send preliminary notices before. After all, you have a communication process that has worked so far. Why change that now?
The short answer is this: your customer may not survive the coronavirus-fueled recession. And construction companies that don’t protect their payments are putting their team members – and their business’ future – at risk.
Lower your notice thresholds
We work a number of companies that have different notice thresholds for different customers. If they have a longstanding and healthy relationship, they may prefer to send preliminary notices or invoice reminders only on construction jobs over a certain dollar threshold.
Depending on the size of their company, that notice threshold may be $500 or $10,000. In the past, they may have only chosen to pre-lien customers on contracts whose value exceeded that threshold.
Now, construction companies are effectively rewriting their credit policies, reducing or eliminating their previous threshold. They’re sending notices to every customer. During coronavirus, no job is too small to protect.
Treat every customer like a payment risk
Other construction businesses prefer only to send notice to recent customers, where they don’t have established relationship. It’s understandable – even if they pass your prequalification process, new customers carry more payment risk.
But times have changed. Every single job is at risk right now.
We’re hearing from more and more construction businesses – large and small – that want to protect every project on their books. We work with so many accounts receivable teams that have cut or eliminated their previous threshold.
Uncertainty increases risk. And during the age of COVID-19, credit managers are rightfully treating every construction project as a loss risk.
Track your lien & notice deadlines like a hawk
The threat of insolvency in construction is at an all-time high. But because a mechanics lien attaches to the property, it protects your payment regardless of your customer’s financial health.
If the GC on your project goes bankrupt in the middle of a project, and you haven’t protected your lien rights, you won’t have a breach of contract to fall back on.
If your accounts receivable team isn’t familiar with lien and notice deadlines in the states where you work, now is the time to brush up. Track every deadline closely, and make sure you are taking steps to protect your lien rights. Missing a deadline could mean losing your right to payment.
(Note for Levelset customers: Don’t worry, we track all of your notice and lien deadlines – and remind you about them – automatically.)
Don’t try to manage everything “in house”
Even back in “normal” times – remember those? – getting paid on time on every project was a slow and difficult challenge. Even then, it required a full team working from the same office.
With credit and finance teams working remotely, many with heavier workloads, construction companies are finding ways to outsource tasks and boost home office productivity as much as possible.
More construction departments are remote
During COVID-19, credit and finance teams in most states are forced to work from a makeshift home office, where they have fewer resources to manage their regular jobs. (That three-screen workstation at your office desk doesn’t fit in the guest bedroom.) At the same time, many construction office staff are seeing their workload increase.
As the risk of non-payment grows, credit teams are now trying to meet lien and notice deadlines on more projects than ever. And they still need to get their regular jobs done – collecting project reports from the field, verifying, notarizing and exchanging lien waivers, and sending pay applications on time. All while chasing down payments from past customers and trying to onboard new ones.
Outsource as much as you can
Outsourcing doesn’t mean giving someone else your job. Managing customer credit and payments during COVID-19 means finding ways to be more productive; to get paid faster with fewer resources.
Identify critical tasks that are draining your team’s batteries, like trying to keep that Excel spreadsheet up-to-date with project deadlines, or writing a new email reminder for every invoice. And use software or technology that can take the mundane, time-consuming work off your plate.
Hold your service providers to a higher standard
We’re hearing from a lot of construction businesses that managing their credit policies in house just wasn’t sustainable in the current climate. Because every single invoice is critical right now, they couldn’t take the risk of missing a deadline or making a mistake on a lien form that could invalidate their rights. They’re choosing lien filing services and payment technology providers to do the heavy lifting for them.
However, just like many construction businesses weren’t set up to function in a social-distancing world, a lot of lien filing services and payment technology providers weren’t prepared, either. Many are set in their ways, still using the same paper processes and technology that they started with 20 years ago or more.
A large Florida subcontractor ended their relationship with a lien filing service in Ft. Lauderdale because “their average days to process notices before COVID-19 was 27 days…now it’s worse.” The deadline to file an NTO in Florida is 45 days from first furnishing – the subcontractor didn’t feel comfortable working with such narrow margins.
Timing & Accuracy Are Business Critical For Cash Flow
When it comes to protecting jobs and ensuring that your company gets paid for their work, timing and accuracy are everything. Managing customer credit before COVID-19 was hard enough. Now every invoice, every notice, every payment document you send should be prepared with the highest level of detail, and sent well before the deadline. Your business can’t afford to give up lien rights right now.
For the next several months at least, every project is a non-payment risk. Credit and finance departments in the construction industry are facing extra challenges with fewer resources. To get through COVID-19 intact, everyone in construction responsible for managing cash flow, from the CFO to receivable specialists, has to be at the top of their game.