Mike Holt Business Newlsetter Series

Mike HoltHere's this month's newsletter in the Business Management series that will take you through aspects of managing (business, financial, jobs, labor) giving you insights and techniques to help you build a better business.

The following content is extracted from Mike Holt's Business Management Skills Workbook.

2.4 Financial Management - Billing and Collecting

Statistics show that the longer a bill remains unpaid, the less chance you have of collecting...

You can’t manage a business without money, so you have to know where the money is coming from, and when it is coming. If you do the work, you should get paid. If you don’t get paid, don’t do the work!

Customers who routinely delay payment as a matter of policy should become ex-customers. Customers who delay payment due to genuine financial causes are potentially placing your firm in the same financial condition that they are in. Be firm, fair and financially sound. Get paid on time!

Billing
Your billings produce your cash flow so each day that you delay billing your customers, you negatively impact your cash flow. You need the funds in your account, not your customer’s, not only to enable you to pay your own bills, but to reduce the amount of interest expense associated with borrowed money.
Statistics show that the longer a bill remains unpaid, the less chance you have of collecting. Get your collection procedures established and working properly.

  • Your billing must be accurate to eliminate delays in adjusting discrepancies.
  • Prompt billing gets the invoice to the customer while the details of the job are fresh in their mind.
  • The sooner the invoice is received and approved by the customer, the sooner you’re apt to receive payment. Remember, there is no embarrassment in asking for money when it is due.
  • Keep accurate records of changes and extras in your installations and see that the proper charges are included. Be clear to avoid confusion.
  • Follow up on delinquent accounts with a letter, email or personal phone-call. Assume the best; perhaps there’s a misunderstanding that can be resolved by making contact with the debtor. If you are sending a letter or an email, you might want to set up a template for yourself, to standardize the process. The letter should thank them for their business, and kindly remind them that their payment is late.
  • Start collection procedures as soon as the invoice is past due.
  • Issue duplicate invoices immediately when the customer claims the original was not received. If you have the customer’s email address, email them an invoice, and select the email option to request a “receipt” when the email is opened.
  • Make a photocopy of every payment received. These duplicate records help to determine whether a payment was actually made. At some future date, you may want to have information regarding this customer’s bank and its address. Retaining copies of their checks will provide a record of this information.

Collecting:

  • Determine who is responsible for collections.
  • Establish a written procedure.
  • Send a friendly reminder immediately when the bill is due.
  • Delegate responsibility for collections to someone who is strong-willed and firm.

Never let anything get over 30 days past due. If you let your accounts receivables go past 30 days, it shows a court and the lender you are not a business just a hobby. Hire a bookkeeper that has collection experience. Make sure he or she is nice; because you will get paid with a spoonful of honey and will get a battle with an ounce of acid.

Mechanic's Lien:
You have various options in collecting unpaid invoices. You have the right to ensure you receive payment for your services. If the customer tries to deny you this right, it’s a warning sign of possible trouble ahead. A Mechanic’s Lien is an excellent tool you use to protect your right to payment, but the proper steps must be followed.

Before you begin the work, it’s important to file a Notice to the owner, lender, and if required, record a Notice of Commencement with the city or county. Let the customer/owner know in advance you plan to do this, so they aren’t surprised. Be sure you understand the exact timing and necessary steps to follow so you can “perfect” the lien later if you don’t get paid. There are companies that can do this for you for a very reasonable price if you’re uncomfortable doing it yourself.

If the debtor is temporarily short of project funds, work out a deferred payment plan that’s due with the next draw, but no later than the last day you can file a Mechanic’s Lien. Consider pulling off the job if you haven’t already finished it but be sure to evaluate each situation individually. Is this a new customer? Is this a repeat customer who has a record of timely payments? Is this a larger client such as a builder who may just be tied up between bank draws on his end of the project? Each of these scenarios are unique and may require different approaches. The important thing to remember is that, as a contractor, you’re not who’s financing the entire project.

Before filing a Mechanic’s Lien, do everything you can to collect the amount due. Call the client, meet with them at the jobsite, do whatever is necessary to determine the cause of the delay in payment. Perhaps the client is dissatisfied for some reason and is intentionally withholding payment. Talk it out. Maybe there’s an easy fix but it might be a more complicated matter such as a misunderstanding in the scope or expectation of the completed work. If it’s the latter, get the details of the dispute in writing so you have a documented record of the issue(s) that can be reviewed once they’re addressed.

It’s always cheaper to work directly with the client to resolve disputes than to involve the courts. Always look for a “win-win,” but don’t work for free, especially if you did everything right and according to the contract. Strive for excellence in your work, all your subs’ work, and hold your employees and subs accountable. Your reputation depends on it. An established reputation of excellence can sometimes go a long way in your favor when dealing with collection issues.

When all other collection efforts fail, use the court system or engage the services of a collection agency. Be prepared for major losses when your in-house collection efforts fail, and you must pay others to collect for you. First and foremost, communicate and exhaust all reasonable efforts to work out a cooperative solution on as friendly a basis as possible. You may find that, depending on the situation, you might even want to keep the customer!

• • •

We'd love to hear from you about this series, and the ways you're using it. Send us your comments and feedback by clicking on Post a Comment below. Look out for the next part in this series a month from now, and please share with your colleagues.

This content is extracted from Mike Holt's Business Management Skills book.
To review or catch up on previous newsletters on Management and Business click here.

Comments
  • This should be a must read for contractors. I retired after 50 plus years of owning an electrical contracting business. Early on I thanked a customer for paying his bill. He said it was nice of me to thank him, but, always remember once the work is done it’s my money not his.

    Bobby Ross  July 9 2019, 10:53 am EDT
    Reply to this comment


Get notified when new comments are posted here
* Your Email:
 
        
 
Add Your Comments to this Newsletter
* Your Name:
   Your name will appear under your comments.

* Your Email:
   Your email address is not displayed.
* Comments:

Email Notification Options:
Notify me when a reply is posted to this comment
Notify me whenever a comment is posted to this newsletter