Cash is King - Tips to Collect Payments Efficiently

by Tom Luby, owner of Profit Builders International

THE POST-PANDEMIC HYSTERIA OF FREE MONEY HAS TURNED INTO A DELUGE OF INFLATION. BELT TIGHTENING WILL BE THE MANTRA FOR 2023. I PREDICT RESIDENTIAL WORK WILL SOFTEN GREATLY THIS YEAR; WHILE COMMERCIAL AND INDUSTRIAL WORK SHOULD REMAIN STEADY, WE WILL FACE A WEAKENING ECONOMY AT BEST AND A RECESSION AT WORST.

My advice is to avoid unnecessary risks, especially this year. Protect your assets, circle the wagons, and focus on reducing your outstanding accounts receivable. Cash will again become king; try to collect your money asap.

Effective collection procedures begin immediately upon the completion of residential jobs and with set payment procedures prior to commencement for industrial and commercial jobs. The elimination of problems before the payment due date will greatly enhance the ability of the company to be paid on time.

Collection procedures must be based on persistent and constant follow-up with a mixture of controls that become increasingly severe. It should be noted that the collector should never threaten to initiate legal action unless you intend to follow through.

Here are the fundamentals of a good collection policy:

• Collections begin first by creating a satisfied customer. Whether residential or commercial, it is difficult to collect if a customer is not completely satisfied. Therefore, the first step is to address customer concerns and then request immediate payment.
• If the job is residential and the foreman does not collect payment upon completion, then timely billing procedures with well-defined payment terms are necessary. If the job is commercial, then establish a pre-determined payment plan ahead of time.
• Preparation and review of a weekly accounts receivable aging list.
• Persistent follow-up using standardized collection procedures.

Poor follow through on collections can wipe out your sales efforts and excellent crew performances. I have seen too many fence contractors mail out the invoice and then forget about it until next month when, if not paid, they again simply mail out another invoice, and so on. This is absolutely the wrong approach.

For commercial accounts, the collection procedure begins prior to the bid review, with a determination by management on the credit worthiness of the GC or developer. If the commercial account is deemed too risky, you may be better served not to even submit a bid; if it’s deemed to be credit worthy, then upon a successful bid and acceptance of the contract, a confirmation that credit worthiness is established. Current credit information must be on file and updated as necessary.

For most government, state and many larger commercial jobs, a Payment and Performance Bond may be required to assure the work will be completed according to the specs and that you will be paid, but as many of you already know, that still does not guarantee payment and collecting good credit info is still a necessity.

The credit file must include all the pertinent information about the account: customer name, address, telephone number, and terms must be recorded. Obtaining a D&B credit rating is advisable and verification of the ability to charge (and who is authorized) must be noted.

Once the contract is signed, the materials have been ordered and work has begun, do not be afraid to mail invoices early. That way, the person in charge has plenty of time to plan to allocate payment. Don’t wait until the last minute, or even worse, until the account is past due to take action. Know the billing cycle of your customer. Do they pay bills at the beginning, middle, or end of the month? Be sure to have your invoice in their hands well ahead of the billing cycle.

Establish and adhere to strict credit policies. For example, if the account has a balance that is more than 30 days past due then payment should be requested before additional work is completed and no more materials are to be delivered until the balance is made current. If there is retention and/or payment schedules for materials and percentages of completion, the same current billing status must be maintained.

If the commercial account falls past due during the work whether or not a Payment Bond is applicable, immediate notification must be given to the appropriate person. Do not jeopardize any Performance Bond you have been required to complete but try to be as firm as possible without being threatening, and act as soon as possible when your commercial account is delinquent.

For residential accounts, it is usually the responsibility of the foreman and/or salesperson to let the customer know the approximate date the work will be complete and arrange for the customer to be present to inspect, approve and pay for the job. If payment cannot be made that day, then contact the customer the following day. Ask if they are satisfied then ask for payment.

It sounds simple enough, but too many times, procrastination creeps into collection efforts. It’s a dangerous habit and must be avoided. The longer you wait to get paid, the harder it is to collect your money.

I will be delving into the details of this topic in my two educational sessions at FENCETECH 2023 in Oklahoma City at the end of February. This will be a very important FENCETECH and I encourage everyone to try to attend.

In the sessions, I will hand out free detailed accounts receivable collections procedures; the best procedure in the fence industry. I have used this with my fence industry clients for decades with great success.

Collections comes down to two choices: persistence vs. procrastination. If you are persistent, you will get paid. If you procrastinate, you will go out of business.

Tom Luby has helped hundreds of contractors within the fence industry achieve success with maximum profitability and efficiency. With over 25 years of experience consulting in the fence industry, he developed the “Roadmap for Success”, a program that can help contractors succeed. The program is available on CD, along with the sales and marketing guide “The Close” by contacting him at:

Profit Builders International
3421 10th Lane West
Palmetto, Florida 34221
www.profitbuilder.org
[email protected]
941-981-3677