Collect your money when it’s due
Positive cashflow is the lifeblood of your business and if you don’t collect what you’re owed your business will fail
THRIVING businesses are good at collecting what they are owed. How you do this, of course, will depend on many factors, including the, the type of clients or contractors you work for, the conditions of contract under which you’ve contracted, your management systems and the skill and expertise of your people.
The main principles are more easily tackled when broken down and considered separately.
Choose who you work for
There are lots of factors to consider. But, just because someone wants to place an order with you, it does not necessarily follow that they will be ready, willing and able to pay you.
Nor can you rely on the apparent size of the customer. Not all large companies pay their debts on time and some national contractors are the worst payers of all, despite what some organisations would have us believe.
You can read more on that elsewhere in CFJ, and we will have some startling survey results to share with you next month.
Whether you get paid on time or not may come down to your relationship with individuals within an organisation, but be wary of an inherent culture of late payment.
As a minimum, you should check out potential clients with an online credit reference agency (we work with one of the best, so please get in touch if you need details). And, make enquiries from other specialist sub-contractors who have worked for them.
Ask how easy it is to agree interim applications, variations etc. and whether they’re prone to making reductions or set-offs.
Understand the conditions of contract
You must know and understand your entitlements before you can begin to enforce them. All too often I see situations where the specialist sub-contractor has only a vague notion of what the contract actually means in respect of payment.
I also see many situations where the specialist sub-contractor sets out payment terms in his quotation only to end up accepting some other terms when the contract is formed.
If you’re unsure about the contract terms regarding payment, take professional advice and don’t simply accept what the main contractor offers you.
Main contractors will often seek to impose onerous payment terms or tie you in to long payment periods. The fact of the matter is that main contractors will amend their terms if pushed hard/persuaded properly, and you can negotiate a better deal if you try.
For many years now there has been some statutory protection in the form of the Housing Grants Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009.
Don’t be put off by its name, the Construction Act as it’s known, covers most contracts CFJ readers will enter into.
When the Act applies there are some fundamentals that must be included in the contract, which generally speaking are to your advantage. If the contract doesn’t contain compliant provisions then terms from the scheme for construction contracts will be implied into the agreement.
This is often very useful against main contractors who don’t understand their obligations under the HGCRA, or who’ve deliberately tried to sidestep them.
Effective management systems
Whatever the size of the system it needs to be effective. Take an objective look at your system. Be honest, is it as good as it could be?
One of the worst problems I regularly come across in both large and small organisations is that of accounts departments speaking to accounts departments. This might work fine in some industries and it might work fine most of the time, but it can be a recipe for frustration and delay.
In most main contractor’s organisations the person who determines what’s paid and when is the quantity surveyor.
The accounts department usually only pay what they are told to pay. Your accounts department can speak to their accounts department until the cows come home but it won’t get you anywhere unless their quantity surveyor releases payment.
The net result will be frustration for you when your accounts people report what the quantity surveyor said and a big smile on the face of the main contractor who gets to keep your money for a little while longer.
Summing it all up
The main points to take away about getting paid are;
- Be careful who you work for, and check them out first
- Understand the payment terms and negotiate a better deal if you can
- Don’t leave it all to your accounts department
- Take advice and action when you need to, and sooner rather than later
Barry is MD and co-founder of StreetwiseSubbie.com which provides business solutions for Specialist Contractors throughout the UK