Getting paid is one of the biggest challenges facing the construction industry, which can be both demoralizing and frustrating. In fact, the 2019 National Construction Payments Report shows that over half of US contractors have cash flow issues due to late payment. This can be crippling to smaller construction companies.
A construction invoice is a notice that payment is due for work that is complete. But one invoice is not always enough. Mail falls through the cracks, or your customer opens it and forgets about it. And you’re stuck waiting and wondering. Contractors benefit greatly from proactive invoicing practices. One incredibly effective way to speed up construction payments is to send invoice reminders. Having a consistent invoice reminder procedure in place for your construction company can go a long way to ensuring steady and consistent cash flow.
How a simple invoice reminder can get contractors paid faster
Carrying unpaid invoices means your construction business is floating costs and extending credit until you get paid. That’s no way for a business to survive. Managing cash flow in construction is hard enough as it is. Office managers end up spending a lot of unnecessary time and effort chasing down payments. Of course, having an effective credit policy is important in the construction industry. But there are always customers who will stretch your policy to its limit.
In an ideal world, when you send an invoice, your customer pays as soon as they receive. But construction companies don’t exist in an ideal world. When payment due dates keep passing by, it’s time to be proactive about getting paid. That’s where invoice reminders come into play.
An invoice reminder should be professional, non-confrontational, short, and sweet. They should include the invoice or payment application number that you are requesting payment on, along with the project name or number. Reminders should also be paired with a “through date,” which is the last date or furnishing labor or materials is covered by the invoice. Also, you need to include the amount owed, and a friendly request for payment.
It all seems fairly obvious, but don’t underestimate invoice reminders. These seemingly simple documents can do so much more.
Invoice reminders improve communication and build trust
At Levelset, we are firm believers in what we call the SET method:
- See everyone and be seen on the job (with visibility documents like preliminary notices)
- Exchange easy paperwork
- Talk it out
Using SET establishes the best construction payment practices. Sending invoice reminders embodies the philosophy of talking it out. The lack of proper communication is one of the main contributors to late payments and disputes.
Sending invoice reminders allows the customer multiple opportunities to pay before taking more drastic measures, like filing a lien or selling the debt to a collection agency. After all, they may be dealing with similar slow payment or cash flow issues from their own customers. Or the invoice could have simply slipped though the cracks at some point. Providing friendly reminders goes a long way to show that you are willing to work with the customer to resolve the payment problem, as opposed to immediately going into attack mode.
Invoice reminders reduce anxiety and confrontation
Many construction companies are nervous or apprehensive about sending payment reminders, especially if it’s a great or frequent customer. You may be tempted to let late payments slide for a while to avoid coming off as annoying or confrontation. But keep in mind, this is money you’ve rightfully earned! Reminding customers that payment is due is just good business practice.
Having an invoice reminder procedure in place can ease all these stress points. Sending short, professional reminders on a regular basis will reduce the emotional triggers involved with requesting payment. Unlike a payment demand or other types of hostile notices, it’s best to start the process with a friendly reminder.
Establish an invoice reminder procedure to speed up payments
Mechanics liens are incredibly effective to induce payment, but they should only be used as a last resort. The filing process is not easy, and it can get costly and time consuming to get right and enforce the claim. There are a number of different options for getting the money you’ve earned, each with increasing levels of tone and aggression. And invoices are the first line of defense.
It all starts with sending the invoice for payment. Once payment creeps past the due date, it’s time to start being proactive. The path to payment success can involve any combination of invoice reminders, payment demands, notices of intent to lien, and finally the actual filing of a mechanics lien. There are a number of opportunities to try and loosen the grip on payment, and the worst thing you can do is wait. The longer you wait, the longer you are floating costs and the more emotions rise.
How automating invoice reminders can help you get paid quicker
Consistency is one of the main keys to having an effective invoice reminder system in place. The problem is, that office administrators can spend hours putting together emails to act as invoice reminders and, depending on the amount of customers, may not even reach everyone. That’s because most construction companies are sending reminders manually based off of their aging accounts receivable (AR) systems. Automation can solve a lot of these problems.
Besides reducing wasted time and effort, automatic invoice reminders bring numerous other benefits. Automation can keep you consistent, professional, and proactive in pursuing payments. Construction businesses with automated invoice reminders reduce the uneasiness involved with payment reminders. Instead, it comes off as a standardized practice, rather than an angry or aggressive collection tactic. And lastly, it can eliminate the element of surprise when lien filing deadlines creep up, and you are forced to take more serious action.
Send invoice reminders automatically with Levelset
Levelset now offers automatic invoice reminders to our subscribers. If you have your invoice data in Levelset, you can now make email reminders on outstanding invoices look professional and hassle-free. You can send reminders for multiple invoices together and track email delivery. All you have to do is set it, and forget it!
Ask one of our payment experts how we can help you take back control of your accounts receivable.