In construction, it’s a never-ending cycle of money going into and out of the business. That’s why it’s so important to keep a watchful eye on how long it takes customers to pay your invoices. We’re not talking about your payment terms. That’s a different thing. We’re talking about the actual number of days between sending an invoice and being paid.
Tracking the amount owing isn’t enough!
Usually, construction businesses measure their success according to the amount of money invoiced. However, if it takes weeks or months to receive these payments, you may need to borrow money to keep your cash flow going. As a result, your interest repayments increase and your expected margins (and therefore profit) decline.
That’s never good, and it’s dangerous at the moment when the industry is experiencing significant price increases and rising inflation.
There are five ways you can fast-track payments for construction businesses and start with your administration.
5 ways to get paid faster
1. Invoice quickly
In other words, invest in bookkeeping or admin services, so your invoices are sent out quickly.
2. Be clear about your payment terms
Don’t expect your customers to “instinctively know” the due date of your invoice and what your payment terms are. This information should be clearly stated on every invoice.
3. Provide multiple payment options
With the rise in payment platforms, there are many different ways you can accept credit card payments, and you could find it incredibly cost-effective. In addition, research consistently shows businesses that offer credit card payment options get paid faster.
4. Don’t let your payment terms slip
No one wants to ring customers to ask for a payment, so we tend to put it off. This is not good for the financial health of your business. Take advantage of your invoicing system’s automatic payment reminders and consider sending an email reminder a day or two before each invoice is due. It’s a proactive way of following up with customers to ensure you are paid promptly.
5. Get serious with late payers!
Have a policy outlining when you will take formal action against slow payers. This includes putting the matter in the hands of an outsourced credit manager. Remember, the research is clear … the longer an invoice is outstanding, the harder it is to get paid.
Give persistent late payers the flick!
While it may seem extreme to decline work from slow-paying customers, it can make excellent business sense. Just consider how their unpaid invoices tie up your cash flow and the amount of time you spend contacting them to obtain payment.
If you don’t feel in control of your business systems or cash flow, get in touch with [email protected] We provide specialist advisory services for Australian construction businesses. To learn more, book your FREE no-obligation 15 Minute Construction Growth call. After the call, you may be invited to participate in the Construction Business Navigator Growth Program.