Project managers understand better than anyone just how widespread the negative effects of accounts receivable can become when not handled properly. It’s not just a matter of having a client pay late or an insufficient amount. These issues cause pervasive problems that impact all components of the construction process. While it’s impossible to avoid all payment disputes and delays, there are some steps construction managers can take to manage their accounts receivable more accurately and successfully.
Reserve credit for reputable customers.
Extending credit to clients is a common practice in the construction industry, especially when dealing with large budgets and extended project timelines. However, credit doesn’t have to be an all-or-nothing element of a construction business. Project managers should extend credit in direct proportion to a client’s trustworthiness. Just like banks reserve loans and other forms of credit for businesses that can pay it back, construction companies should only provide credit to customers they know are reliable. You can adjust the amount or length of credit depending on the client’s level of dependability.
Outline penalties for late payments.
In general, people are more likely to follow rules when the consequences are well-known. The same is true when it comes to encouraging clients to make timely payments. Simply providing a date without any penalties will make the deadline appear more like a suggestion than a steadfast requirement. It’s important for project managers to clearly outline specific penalties for delayed payments. Increasing the charge for each day or week the payment is late will further highlight the importance of making on-time payments in the eyes of your clients. It’s not about punishing your customers but about protecting you and the most important asset of a construction company: the team of craftsmen.
Incentivize early payments.
Negative reinforcements in the form of late penalties aren’t the only way to encourage timely payments. Project managers can supplement this strategy with incentives for on-time transfers. This way, clients aren’t just obligated to pay you before the deadline, they’re more than happy to do it. These incentives can come in the form of a small discount or credit towards future projects, depending on your relationship with the specific client. If you don’t want to suffer the markdown, bake the discount into the overall project quote so you break even financially while still encouraging timely payments. You might even find that these early payment perks help you land bids more consistently as clients see it as an incentive.
Send out regular payment notifications.
As a project manager, you can appreciate just how much it takes to run a smoothly-operating and successful operation. No matter what kind of construction project you’re undertaking, there’s a good chance your client is just as busy as you. While this isn’t an excuse for late payments, it’s a fantastic reason to consider sending regular payment notifications to customers. They’ll appreciate a heads-up about upcoming payment deadlines they likely forgot about, and you’ll have the benefit of receiving more on-time payments. Letting the client choose their preferred method of contact to receive these payment notifications ensures the message is more likely to get received.
Keep track of everything.
It’s easy to complain about the mountains of paperwork required to get a project off the ground. However, it’s these documents that will end up being a project manager’s best friend whenever payment disputes arise. Resist the urge to throw these contracts, correspondence, and other documents haphazardly into the drawer or a random digital file after the paperwork is completed. Taking just a few hours to formally organize everything will save you from significant headaches if a client raises an issue.
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