Getting paid is truly the only thing that keeps a business open. There are a lot of tips and tricks that are suggested to keep the cash flowing, however, they are not all sound advice. Especially in the construction industry where invoicing and payment methods can be more complicated, there are some stubborn construction payment myths that need debunking.
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Myth #1: You can worry about payment terms after the job is done
This construction payment myth is extremely unhelpful to gaining cash flow. If you are bidding on a job, acceptable payment terms should be worded in your bid. Without it, you will end up stuck in a job with unfair payment terms and nothing to leverage with. Not including payment terms up front will leave you with a finished job and no cash to show for it.
Myth #2: Waving lien rights without consideration is unenforceable
In many states, this is completely untrue. Depending on the jurisdiction, lien rights can be waived through a contract without any additional consideration. Your first red flag should be if a customer wants to waive lien rights. There is usually a reason, and that reason will affect your cash flow.
Myth #3: Don’t cause trouble or offend the customer
Although at first glance this seems like a perfectly acceptable motto to live by, it all comes in moderation. If there are problems on the site and the customer is not aware of them, they may withhold payment because they were not told sooner. Always keep the customer aware of issues and address them in a timely manner. Don’t worry about offending the customer when asking them to sign off on your payment terms or checking into their credit history. These are all crucial factors to take into consideration for your accounts receivable.
Myth #4: There is no difference between “pay-when-paid” and “pay-if-paid”
There is a huge difference between these two phrases that can ultimately affect whether you get paid on time or paid at all. Pay-when-paid, in most jurisdictions, means that there is an obligation to pay in a reasonable amount of time. However, pay-if-paid means that if payment to the contractor is not received by the owner, timing and entitlement to your payment can be pushed back.
Myth #5: Accounting software is too expensive to help with cash flow
There are a lot of different accounting software choices on the market that can help manage your accounts receivable, and many of these range in price ranges that are extremely affordable. These accounts receivable applications can send invoices to customers and keep track of your communications with them to be sure you haven’t missed anything. Using workflows, you can see who is the furthest behind on payments and make them the top priority of your call list. With all of the information in one place, invoice disputes are reduced in number and resolved quickly.
Although these construction payment myths seem harmless, they can actually hurt your cash flow and your business in the long run. Putting best accounts receivable practices in place can ensure that you are always getting paid on your terms and not getting duped by sneaky customers. To learn more about creating a world class credit policy and collections action plan, read this white paper from Anytime Collect, an industry leading accounts receivable management software.