Getting paid on time is critical in any field you work in. Yet, in the construction industry, contractors consistently run into issues with slow and non-paying customers.

This can be detrimental to your business, especially if you’re in debt after purchasing materials and paying labor workers. What can you do to prevent this

Well, some contractors require 50% or even 75% upfront before the project commences. If you’re a reputable contractor, then asking for a large chunk upfront is easier.

However, you still have to hope the client pays the remainder of the balance in a timely manner.

There are reports that 63% of construction businesses are receiving regular payments (and in advance in some cases). Yet, the remaining 37% are being paid 30 days or later for completed projects.

On average, it takes construction contractors 73 days to receive payment.

Thankfully, there are some best practices you can implement to increase the chances of getting paid in full and on time.

And it all has to do with how you create, distribute, and manage your contractor invoice.

Let’s take a closer look.

Top Reasons Construction Clients Don’t Pay On Time

Sometimes, it’s not shady customers intentionally holding out on paying your construction firm. In some cases, it’s due to the contractor invoice not arriving on time or getting lost altogether.

There’s also the potential of disputes, such as when money is misappropriated on a project. It’s important to square away potential disputes by providing itemized estimates detailing the potential costs for materials and labor.

Bad communication is one of the top reasons construction customers are unwilling to pay. So be sure you have an invoicing system that ensures the delivery and receipt of your bills.

It’s also important to have reminders set up so the customer doesn’t forget to pay.

Next, let’s take a look at what you can do to ensure your contractor invoices are paid without issue.

Choose a Quality Invoicing System

By quality, we mean a platform that enables you to create invoices using pre-made templates that are customizable and professional. The system should also have cloud-based capabilities so users can access invoices from anywhere, on any device.

Not only will electronic invoices save you money, but it’ll ensure your invoices are delivered instantly. You should be able to manage and review all invoices in the system using a desktop or mobile device.

Then if you need to set up recurring payments and reminders, the platform can do it for you.

It’s also best to go with a platform that offers tracking features for time and expenses. This way, your business is fairly compensated and your clients are fairly charged.

Keep your customers in the loop to the rising costs of the invoice so they’re not surprised when the contractor invoice arrives in their inbox.

The system you choose should allow online payments using a variety of portals, such as PayPal, Stripe, and debit/credit cards.

Input Customer Data to Get Organize

Now, it’s time to start inputting all of your customers’ information into the system. This helps if you have current or recurring clients you do work for.

To ensure everything goes smoothly, be sure to include each client’s name, number, billing/mailing address, and preferred payment method.

Once you insert all of your customer data, it’ll be easy to send out bills and set up recurring payments in a matter of minutes.

Recurring payments are ideal if you break up the total into monthly payments.

Design a Professional Invoice

No, we’re not talking about the color schemes you choose for your contractor invoice design. What we’re referring to is the layout.

Invoices with an unprofessional design tend to be confusing and annoying. It also makes your construction business look mediocre.

Be sure to have your logo, business name, address, and phone number at the top of the invoice where it’s easy to find. Then break down the invoice in an itemized format, showing exactly what the customer’s paying for.

With an invoicing platform like Invoicely, you can easily create professional invoices. You can also manage them easily by adding in new items and amounts as the project goes on.

Now, this isn’t to say colors don’t matter at all – you do want your invoice to stand out from all the others. So it’s a good idea to include your brand colors.

Also, don’t forget to include clear payment terms, such as the due date, late fees, and so on. All of your invoices should have a unique number so it’s easy to refer to in the event a dispute arises in the future.

Offer an Incentive to Pay On Time

Let’s face it, there are some customers who are disorganized and unprofessional when it comes time to pay your bill.

As a rule of thumb, you should have an incentive in place that entices customers to pay as quickly as possible.

For example, you can offer a discount on the total if the bill’s paid before the due date. It also helps to include penalty fees for late payments.

You can either charge a flat fee or a percentage of the project’s cost.

If all else fails, you can always offer a payment plan for customers struggling to pay. It’s better to get paid little by little than nothing at all.

Be mindful of the demographic you’re servicing. If you’re consistently remodeling rehab homes in a lower-income community, then setting up payment plans from the get-go may be the way to go.

Send Out Your Invoice Immediately

One way to slow down payments (or even encourage non-payment) is to send them out late. Your contractor invoice should go out immediately after the completion of the project.

This works well because the project is still fresh in everyone’s mind, as well as the appreciation for the great work your crew did.

With an invoicing platform, you can ensure you send invoices on time, every time. Everything’s already filled out so all you have to do is click send.

Avoid Extended Payment Terms

You’re a contractor, not a bank dealing out credit. You have expenses that require payment as soon as possible, so it’s only fair you’re paid as soon as possible.

Unless you’re offering a monthly payment plan, it’s essential to have payment terms that are no longer than 7 days. This is typically what small businesses today require.

Anything longer can put you at risk of falling into debt with those you owe. For example, your laborers – how can they trust working with you on future projects if they’re not getting paid on time?

And the same goes for manufacturers. If you’re buying from warehouses, it’s critical to maintain healthy relationships.

You can’t do this if you’re paying their invoices late all the time. By managing these relationships appropriately, you may earn some credit in the future.

This will give you leeway on the time frame to pay off your invoices. And, in turn, you won’t feel the pressure when your customers don’t pay you on time.

Reference Your Estimate in the Invoice

Disputes are a real concern in the construction industry. So to minimize problems with your invoice balance, it’s good to reference your estimate in the bill.

This way, there are no questions regarding why you’re charging what you’re charging. If necessary, you can include the estimate with the bill.

Keep All Purchase Receipts On Hand

It’s not always possible to keep disputes at bay. When they do rear their ugly head, make sure you’re prepared.

You can do this by holding on to all evidence, such as purchase receipts, invoices, and bills. Keep track of everything you purchase, as well as all the time spent working on the project.

Construction is part materials and part labor. If you can provide evidence of the costs for both categories, then it shouldn’t be difficult to get out of disputes.

Setting Up a System to Increase On-Time Payments

With the right tools and knowledge, you can create a system that promotes on-time payments. With Invoicely, you can ensure you have the system needed to send out invoices on time and in a professional manner.

Plus, you can track and manage all invoices in one platform.

Then if you use incentives to encourage payments, this too can help. Another option is to demand a large percentage upfront or at milestones.

For example, you can require 25% for the first quarter of the project, then another 25% when you reach the halfway mark. This will ensure you’re paid upfront before beginning the next phase of your project.

Just don’t be afraid to call in the help of collection agencies when things get out of control. And as always – remain professional and courteous.

Are you in the construction business? How do you handle getting on-time payments? Let us know in the comments!