How to eliminate overdue invoices with data

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Martin Roth
Martin Roth
8 years experience

Eliminate Overdue Invoices Webinar

 

Watch part 3 of our Credit Manager Coaching Series and become the payment hero of your construction company.

Martin Roth, Levelset Chief Revenue Officer, has over 8 years of experience helping credit managers and controllers successfully deal with slow payment. After working with credit managers and controllers at some of the largest suppliers and contractors in the country, Martin knows the tips & tricks to make your life easier and your payments smoother.

This 3 session virtual class is designed to help credit managers see the processes and practices that help credit departments level up.

  • Part 1: How Distributors Can Identify Late Payment Before it Happens (Watch Now)
  • Part 2: How to Control and Influence DSO with Lien Rights (Watch Now)
  • Part 3: Eliminating Overdue Invoices with Data (Watch Now)

Transcript

Speaker 1 (00:05):

Happy to be back with you for our third installment of driving selections and driving down receivables for suppliers and distributors. And, this, this installment is eliminating overdue invoices with data. My name is Martin Roth. I am the chief revenue officer here at Levelset. I’ve been here for eight years. I’ve worked with thousands of contractors, suppliers, equipment, rental companies, some very, very big companies and many very small companies. And so we’ve, we’ve helped companies of all sizes. We’ve seen a lot of what to do and what not to do on today specifically. We’re what we’re going to talk about is a step by step guide for reviewing your AR and in specifically reviewing past due invoices, hopefully help you think a little differently about your aging receivables and think of some things that you can leave this webinar today and go put into action, go into your ERP, run your aging, and think about it a little differently and hopefully go get some cash into the business, which I’m sure you need.

 

Speaker 1 (01:04):

We all need a little more cash in our business, especially right now. The second thing we’re going to talk about is how to use data to efficiently collect on the invoices. And then finally, we’re going to talk about what to do when the lien deadline has expired. So let’s jump right in. I mentioned the national construction paper report at the beginning. Again, you can find it at levelset.com/survey to contribute to the, to the report. You can also download the report. We will send this slide deck out to everybody who registered for this webinar. So you’ll have access to the spring version of that construction paper report. We do another one here in the fall. Now we’re gearing up for here, but a little bit of a little bit of  insight from this most recent report, we had over 500 respondents, which is definitely a statistically significant sample size of construction, construction companies and suppliers.

 

Speaker 1 (01:59):

And so some, some of the takeaways from this report, 80% of contractors spend a substantial amount of time chasing down payments. So whether you’re a subcontractor or you’re a supplier or distributor, who’s delivering materials or renting equipment to contractors, it’s important for you to understand how quickly your customers are getting paid or, you know, what your peers are doing in the market. 84% of contractors experienced delays on some or all projects that one’s probably pretty obvious. Construction is building things as hard as building things on time and under budget as hard and delays affect everybody or almost everybody in the business. But the one key takeaway is that 54% of contractors over half say that payment delays are caused by slow payment above them on the project. So whether it’s you or your customer, usually the reason they’re not getting paid is above them on the project.

 

Speaker 1 (02:57):

The owner, the general, someone above them is withholding payment. Sometimes it’s related to a payment application. Sometimes it’s related to not having the right lien waivers provided could be a workmanship. This could be any number of things, but the payment. And this is, we went through this on two sessions ago, which is that the payment in most cases has little to do with what the direct relationship is with your customer in many cases, not always, but in many cases, uh, it’s it has to do with that job. We’re going to talk about that as it related, as it relates to invoices and collecting, bring it back up a level. Let’s talk about the problem of why it’s so difficult to get paid on a construction project. I’m going to go through this very briefly because we have gone through it twice. Now in the past two webinars, when you think about construction projects, each job is a thumbprint.

 

Speaker 1 (03:46):

You can think about each job being unique in that the same combination of elements of participants, the same owner, contractor, subcontractor suppliers are never going to come together in exactly the same way on another person, or if they do. It’s very, very, very rare. Every job has a thumbprint and coordinating across that job is a challenge because you have different levels of sophistication, different levels of process. Uh, we all know that when you’re working with a larger organization, you can normally expect that it’s gonna take longer to get paid because they have better payment terms because they have a lower credit risk companies that have higher Reddit credit risk. You may be having, you have Cod terms or you you know, there’s all, all, all types of different ways that companies interact with each other. And that’s why it’s important to understand the the challenge that each project presents because of how unique each project is.

 

Speaker 1 (04:48):

You know, so if each project is a, is a fingerprint, why does slow payment happen? Usually if you’re on the bottom of the project, as in you’re a distributor or a supplier or a sub sub contractor payment problems at the bottom of the project, usually start at the top of the project, going back to the construction cable report, 54% of contractors say that slow payment happens because of slow payment above them on the job. And the thing about construction projects is that project accounting is what it is. Money tends to stay within the job. And it kind of has this trickle effect going from the owner of the lender, to the owner, to the general contractor and non down the payment chain. As we like to say, so payment problems at the bottom, they start higher up on the project, right? How do contractors prioritize?

 

Speaker 1 (05:41):

Who gets paid first? This is a really key takeaway. That’s important to understand owners want the job done on time and under budget. They hire GC general contractors who need to keep the property or the project, the job free and clear of liens to make sure that everybody gets paid, but also that they don’t overpay or double pay for work. Subcontractors need cashflow to finish the job. And in so many cases, suppliers are left holding the debt for too long, right? How do contractors prioritize? Who gets paid first? Usually the company that’s protecting their lien rights or it, the company that is most visible on the project is going to get paid. First. An owner does not want to lean on the project. An owner wants to make sure that the sobs and suppliers are paid for their work or for their materials. So when the Saab and the supplier make themselves known on the project, that owner is going to make sure that that sub or supplier is getting paid because they need the lien waiver for the amount that that sub or sub supplier is owed. Right? So it’s a little bit of a quid pro quo for owners who want to make sure they know who everybody is on the construction project. So they don’t have any leaks.

 

Speaker 2 (06:55):

Alright.

 

Speaker 1 (06:55):

I pulled out a specific segment of the construction payment reports. Really interesting because it talks about why contractors don’t protect their payments. Even though we know lien rights are part of doing business, lien rights are the prudent thing. It’s a best practice. We know that owners and general contractors want lien waivers on their projects. But so many solids and suppliers are afraid. And this, this is the takeaway right here. This section contractors are afraid to demand payment. While some said that the lien claim process is complicated or expensive. The majority said they were afraid to lose a customer. 56% said they were afraid to lose a customer. If they were to protect our lien rights, this is a scientific fact, a hundred percent of people do not like liens. Nobody walks on to the job and says, I can’t wait to lien this job. Everybody starts the job job out with the best of intentions, when a good partner’s putting repeat business, nobody wants to lien.

 

Speaker 1 (07:58):

So if nobody wants a lien, but you have this device, this lien, right, this thing, this instrument that you can use to make sure that you get paid on time and get paid fairly. And that the owner is definitely conscious of because they’re requesting lien waivers. It’s, it’s really important that you understand how to use lien rights and that you use them when they are appropriate, not on every single project, because you may decide for relationship reasons or what have you, that you don’t want to protect lien rights, but at least you can make a conscious decision about it, as opposed to, as opposed to just ignoring it and hoping that you get paid. Right? So let’s get into using data to collect on invoices. This is step by step guide for reviewing your invoices and taking action on those invoices. So you can take a screenshot copy and paste.

 

Speaker 1 (08:48):

We’ll send this out in an email after this webinar, but this is your checklist. And the first two are going to be pretty. This is like one Oh one collections, start with the largest outstanding amounts. Uh, and the, the trick on this is you want to calculate what percentage of that, that balance, that amount that, um, I would say in the account, what percentage is over 60 days in construction, this is really important. If you’re supplying lumber, for example, and you have a customer, who’s got a million dollars, and I’m just going to use a round number, a million dollars outstanding, and a hundred thousand dollars of that outstanding amount across their whole account is overnight over 60 days. But the other $900,000 is under the 60 days. Well, you’re going to treat that differently. Then the opposite where somebody has $900,000 outstanding over 60 days and only a hundred thousand dollars within 60 days, that’s obvious, obviously more risk.

 

Speaker 1 (09:43):

Now I know you would say, Hey Martin, like, of course, that’s true. Well, let’s, let’s, let’s put it on the table for all of the ways to evaluate the data for your aging, as opposed to just looking at the amounts. It’s important to click closer and look at the actual accounts and how, and what the risk profile is. Start from the oldest debt and go to the most recent. This is a simple one, which is the most recent debt. Give them a little bit of time to pay it. The oldest stuff, focus almost oldest and make a, make a determination how likely you are to collect that, that debt. I specially, if it’s getting out there 180 days, 200 days, um, if it’s a significant amount and it’s aging that long, then you really did ask what’s going on with that customer relationship. Is that a legitimate customer relationship?

 

Speaker 1 (10:32):

This is a best practice. Number three is a best practice that we learned from one of our customers. They do a really good job of sizing up all of their customers and what they do is they grade their customers by risk a B and C a being the least risky and C being the most risky. And they create a plan for the BNC customers. And so, as it relates to lien rights, the BNC customers are the ones that they absolutely are going to protect their lien rights on, and to see customers, they treat a little bit differently than the big customers, but going through that exercise and establishing, um, your, your risk profile for each of your customers is definitely a best practice. And that’s really good data for your team to use, to guide their interactions. Um, number four, for everything over 30 days past due.

 

Speaker 1 (11:19):

So if you’re given net 30 terms and it ages another 30 days send a payment reminder, this is a really simple thing. If you’re not automatically sending pin and reminders, basically of a trigger, it can be polite. It can be friendly. Just a reminder, get to the top of the inbox, because in many cases, the reason an invoice doesn’t get paid is because people simply just don’t know about it. It falls to the bottom of their list. They’re not paying attention to it. Uh, and they’re not, they’re not paying attention to your invoices as much as you’re paying attention to your invoices, but you gotta get comfortable with talking about it. And if you’re in business to make money, they gotta make money, too. They have to invoice our customers. It’s okay to send payment reminders. The a and you want to be careful about it.

 

Speaker 1 (12:01):

You don’t send it five days after you send the invoice, obviously, but you know, you want to pay attention to those payment monitors and send them based on some trigger. We recommend 30 days past the due date. Number five, look at the project behind the invoices, review the contractors on the project, not just your customer member, slow payment above is usually what happens. What causes slow payment look at, who else is on the project. Look at that general contractor, look at the owner. Is there a potentially risk on the project, especially if it’s a significant sized invoice and then the last two for everything that’s got to excuse me for everything that has a lien deadline coming up within 20 days, send a notice of intent to lien in many States. This is not a required document. In some States, it is a required document to protect lien rights, but in every state, it is an absolutely effective document.

 

Speaker 1 (12:53):

A notice of intent to lien. We’ll get the attention of everybody on the project, especially your customer. And in many cases, it does lead to getting paid on that job. And this is obviously for stuff that’s coming up on a lien deadline. You don’t want to be haphazard in sending out a notice of intent to mean kind of a shot across the bow with the customer. Um, and so you want to be, uh, deliberate in how you communicate with that document. And then finally, if you haven’t collected by 85 days past the date that you were, uh, the last furnished labor and materials, you want to start thinking about filing the lien, make sure you understand when the lien deadlines coming up, hopefully you’re using a system like Levelset to keep track of your lien deadlines. So you don’t have to keep track of them yourself, but nevertheless, once you start bumping up against 90 days, that’s when it’s time to start thinking about whether or not you need to file a lien.

 

Speaker 1 (13:45):

And it may be that you decide that you don’t want to file a lien. And that’s totally okay. But again, make sure you’re making a conscious decision about it and not forgoing your lien rights, just because you didn’t pay attention to it, or because you forgot that there was lien deadline coming up. So this is a great checklist. Something that you can look through, there’s at least what my bet is that there’s at least one or two ideas in here that you can take back and apply to your AR and think a little bit differently about how to collect. And we’ll jump into some of these specifically. So the, the first one or sorry, the fourth one is for everything that’s over 30 days past due send a payment reminder. Most projects, a simple reminder is enough to fast track your invoice. I gave a CA uh, I took a screenshot of our standard payment reminder that we use within Levelset.

 

Speaker 1 (14:36):

Um, we have a number of customers that automatically send these payment reminders out, and it’s been a game changer for so many of them. And just being able to keep more cash into their business. And it’s pretty benign. It says, you know, it’s got your logo at the top, but you can, you can type this up in Microsoft word. If you, if you don’t have a template, we even have a template online. Well, I’ll make sure we send that in the followup email after the webinar, but I put obviously how do they get in touch with you, make sure that they know where to pay the invoice, or when, where to send the check, uh, who it’s going to the subject simple payment reminder for a specific invoice, a short message, a short reference to the project, thanking them for their business. And then you move, you move forward with it.

 

Speaker 1 (15:19):

And this is something that, again, a lot of our customers use to accelerate payments and lower DSO and just to keep more cash into the business. Another one I’ll want to key in on is everything within 20 days of a lien deadline, send a notice of intent to lien on this is a really good graphic. I did mention, I sent you all an email this morning that said that if you tend, I’m going to send you our notice of intent to lien cheat sheet. This is an image from that cheat sheet, which is just an idea of how to think about using notices of intent to lien. The, the best way to think about it is that you start the project, you finish the project, you send your invoice, or maybe you’re in the middle of the project. You send an invoice after some period, that’s going to be up to you.

 

Speaker 1 (16:04):

We say, wait until 20 days within like 20 days until the lien deadline, it can be before that it’s going to be whatever you’re comfortable with. But after that period, you send a notice of intent to lien. That’s when it’s most effective as leading up to that lien deadline. I know guys are still useful after the lien deadline, but their most effective as the lien deadline approaches. Remember that and put that tool in your tool chest for how you can get paid on aging receivables. When you think about using data to collect invoices, the first thing that I always recommend is start with the project in mind. When you look at the project, you look at it at an account and you look at those sub accounts. So the project accounts, or however you organize it, if you’re not organizing your AR with respect to sub-accounts or project accounts, then you’re missing an opportunity to really understand what the risk is for a specific debt.

 

Speaker 1 (16:57):

But you start off by reviewing the project in mind, who else is on that project? How will your payment be influenced on that project? Is there something that’s a affecting payment on that project? Like a natural disaster, or, you know, for national companies that stuff matters. You had a hurricane in Florida, natural jeopardizing the project. Well, you know, you can, you can start to see that that, that, uh, portion of your receivables may be impacted. It’s important to have that good context. I mentioned this earlier grade, your customers by risk. I like the stoplight method methodology, which is that your riskiest customers are like a red light. You’re somewhat risky. Customers are like a yellow light and your best customers are a green light, strong relationships, rarely cause payment issues. So it’s important that you understand where your weak relationships are and you create a plan for how to de risk those relationships.

 

Speaker 1 (17:49):

It does not mean that you can’t do business with people that you don’t have a relationship with, or that you don’t trust. But when you enter a new relationship with a customer, you want to make sure that you have a plan for how you’re going to get protected, how you’re gonna collect that, how you’re going to secure your lien rights so that you aren’t left holding the hot potato, um, in the game of hot potato, right? So go through all of your customers and it may take time. It may take a couple of months for you to get through all your customers, especially if you’re a supplier and you have tens of thousands of customers. I totally understand. It’s easy for me to say, go through all your customers and grade them, but this is a best practice. The companies that understand the risk profiles, each of their customers in a very simple framework are usually the customers of ours, who, who, um, have the best, uh, receivables health and the best ESL.

 

Speaker 1 (18:42):

So as a best practice grade, your customers by risk create a plan for the BNC customers. Um, the other thing that you can do, and we have tools like levelset.com/contractors, it’s free. You can go on there and look at any contractor, GC subcontractor and see what their payment profile is. You can see whether liens have been filed. You can, you can answer questions like does the contractor have good payment history? What’s the retainage. That’s usually on this contractors project. I want to take a moment. Even if you like a supplier or distributor, you don’t have retainage. Retainage can still affect your payment, especially if that retainage is 10% or even 15%. Sometimes we see that that does have an impact on, on, um, on receivables for lower tier participants on a project. And then, you know, most importantly, are there any liens filed on this project?

 

Speaker 1 (19:33):

There’s a direct correlation with a lien on the project that you’re supplying material to and slow payment on that project. So you want to make sure that you’re aware when there are issues with payment, that’s good data that helps you identify how you can go collect on those invoices. Um, and then what to do when a lien deadline has expired, this is really important because you may go look at your receivables after this call, you go run your aging and look at everything that’s over 90 days. And then you cross reference that with the state that the project is in and you find out, Oh, no, the lien deadline has expired. Not all those loss. You can still use that notice of intent to lien to pull that invoice to the top, the company still owes the money, right? So if your Pasiliene deadline, it’s not a foregone conclusion that there is no lien, right?

 

Speaker 1 (20:22):

But it is important to at least communicate the nonpayment because in many cases, that’s enough to shake out payment from that project and make sure that you collect on that aging debt. So even if you have a missed deadline, we have a really good article on this, on our blog about what to do when you miss a lien deadline. But what we’ve seen is that notice of intent to lien document is very effective at helping collect after the lien deadline has passed and you didn’t file the lien. So keep that in mind. Again, keep that notice of intent to lien in your tool chest. It’s a really, really powerful tool to help you get paid faster. I’m going to send out the notice of intent to lien cheat sheet in here. It’s going to talk about what is a notice of intent to lien.

 

Speaker 1 (21:04):

It’s going to talk about why should you send it when should you send it? Uh, all of the things that you need to know, it even goes into depth on which States require it in order to protect lien, right? So make sure that you understand it fully and that you start to use it when it is necessary, but only when it is necessary. So final protests. And this is what we put at the end of every webinar, made sure you’re sending preliminary notices at the start of every project, use a platform like Levelset or something similar to exchange lien waivers electronically. So many subcontractors and general contractors would prefer that they receive the lien waivers electronically, where it’s appropriate. And it attacks this in Florida has some issues, but you want to use electronic document exchange when you can use that notice of intent to lien 20 days prior to the lien deadline.

 

Speaker 1 (21:54):

And then when you are bumping up against potentially filing lien, talk it out, try to resolve the issues. And if that fails, make sure you file a lien because once the lien is filed, you could always go cancel the lien. But if you miss the lien deadline, then it could be failed to your lien rights. We know that that’s key to making sure you get paid with that. If you want to learn more, we do Levelset does have a solution that can help you navigate this entire process. We would love to work with you, go to Levelset.com/features. You can read all about the stuff that we do for suppliers and distributors to request that we contact you. You can reach out to me directlyMartin@levelset.com definitely want to hear from you and work with you with that. Any questions I’m going to jump to the Q and a.

 

Speaker 1 (22:37):

So the question is, can we add specific customers that are lacking and their payment terms, and how does this work in the process? Like after we put the invoice, do we let Levelset handle the digging on the status? So if you were, um, the question is specifically about, uh, I think this is about the, the, um, contractor pages. So if we don’t know about the payment terms, but you just want to put the contractor in there, we recommend suggesting a contractor. If you have somebody that you want to say, you can email me directly and I will, um, I’ll do my best to, to get our team to fill in the information. It’s not always like direct where if you tell us, you know, we want ABC construction on the contractor profile, it’s a guarantee that we’re going to get normal payment terms, or it’s a guarantee that we’re going to understand their retainage.

 

Speaker 1 (23:26):

We usually crowdsource that from users, either Levelset subscribers or from people who are on the website, who are volunteering that information. So we do collect that information from that group. We also collect it from the company themselves. We will make phone calls if they’re willing to share that with us. Um, another question, can we file the lien against the lien discharge bond? That’s a specific legal question. I’d recommend men arena that we have the, the expert center, uh, and I’ll show you how, where to, if you have specific legal questions, we have a network of construction attorneys who can answer those questions, full disclosure, not an attorney. And so I can’t give legal advice or ask, answer a legal claim, but if you go to Levelset, ask a question up here on the top left, and you can, you can see it’s really easy.

 

Speaker 1 (24:16):

You can post a question anonymously. And a question like that one arena is, um, is a great one to ask in our expert center. Uh, another question says, what if they say it says the contract, it says, it says in the contract, when we get paid, you get paid. This is a great question. So pay when paid or pay if paid clauses. It’s, that’s a very, that is a very sticky situation because it is contractual. Some States have different rules for what is allowed and what’s not allowed. So the first thing I’d recommend is make sure you understand whether or not those clauses are legal in the state that you’re working in. Um, we have an entire page paid. One of the best things about Levelset is that you can just Google any term and click Levelset. And we’ve almost always got a, an article that we’ve written on it.

 

Speaker 1 (25:11):

So this is the one I’m looking for any, uh, payment paid help. We have a ton of articles on pay when paid, I don’t know which one specifically answers the question that you’re looking for, but protecting lien right lien rights are still valid. When you have a pay paid or pay when paid clause, it’s important to understand what’s allowed in the state that you’re working in. Um, another question, can we put invoices for a Levelset as a trial to see if we would like to continue the services? Absolutely. We, uh, we can set you up, show you how to put invoices in the platform. Um, send out a few payment reminders, um, show you what the platform looks like. So that stuff is totally available to you. Um, again, Martin at levels up gone, you can reach out to me or you can go into, um, our website and just request a call and you’ll, you’ll connect with one, a member of our sales team.

 

Speaker 1 (26:01):

And they’ll walk you through how to, um, how to preview that, that function. Um, another question, do we have lien rights if we haven’t filed a preliminary notice? So I, again, can’t give legal advice. I can’t tell you whether or not you have lien rights. It usually depends on whether or not a preliminary notice is required in the state. Usually if a preliminary notice is required and a preliminary notice is not sent or PTO, I mean, they have a bunch of different names for these, but if a notice is required and the notice is not sent, and it’s usually fatal to the lien, the lien, right, for that particular project and for that contractor or supplier. So it’s really, really important to understand whether or not your state requires preliminary notices. And you can do that by going to Levelset and going to our learning center. And we had it listed out by state. So we put it in layman’s terms, it’s free, go and educate yourself on what is required in your state. That way you are knowledgeable. And, um, and that you, you know, make sure your lien rights are protected. Thank you all for the time. Have a great day.