Slow paying customers have been the death knell of many businesses. For businesses they haven’t ruined they still cause enormous stress and create cash flow issues. As a contractor you’ve got better things to be doing with your time than fretting over past due bills because of an ever growing pile of unpaid invoices from your customers. .
Fortunately, there are tools like JobFLEX, our revolutionary estimate and invoice app that can help you create processes to reduce or even eliminate your issues with slow payments. So let’s walk through some of these elements and show you how JobFLEX can help.
Get Half of Your Payment Before You Start
Materials cost money and your people need to get paid. NEVER start working on a project until you see some money. You’re creating unnecessary cash flow issues if you start dumping time and resources into a project with no money down. When using the JobFLEX app, the default terms of a contract on an invoice clearly state:
Payment Terms: A down payment of 50% is due upon acceptance of quote. The balance of the contract is due the day of project completion.
These terms can be edited, but it’s highly recommended that you require 30-50% payment up front. Before even finalizing work on your schedule you should make sure you receive this initial payment. This way, even if you get a delayed payment on the back end you’re not completely hung out to dry. You can also avoid a delayed payment on the backend by making sure you educate your customer that the final payment is due upon the job being completed. Make this clear at the beginning of the job and remind the customer so they are prepared to pay you the day the job is finished.
Don’t Mess Around With Payment Terms
If you give people an inch they’ll take a mile. This is certainly true when it comes to defining your payment terms as well. Selecting payment terms with too much runway is where many contractors go wrong. Some contractors will use end of month or Net 30 payment terms and watch as those timelines come and go. The only sensible option for contractors is to clearly state that payment is due upon receipt. JobFLEX can help speed this process up for you as well by allowing you to send an invoice from your Android phone before you even leave the jobsite. JobFLEX allows you to easily set your default invoice terms to “0” for number of days due and it will automatically make your invoice terms “Due Upon Receipt” as you can see below:
The beauty of using due upon receipt as your invoice terms is that if you have these terms on your official paperwork and the customer doesn’t pay, you have a legal right to reclaim the goods.
Penalize Those Who Pay Late
Deterrence doesn’t always work, but it’s certainly a tool you can try to use when it comes to reducing the number of people who slow pay you. That’s why JobFLEX offers the ability to add custom notes to your invoices. Here you can specify the penalties for a late payment. You can use the following wording which is fairly standard for late payment terms.
Accounts not paid within terms are subject to a ___% monthly finance charge.
As far as determining the amount of the late fee, somewhere between 10-20% annually is fairly standard. So, for example, if you have a 12% annual fee on a $5,000 project, the customer would owe you:
$5,000 x (0.12 / 12) = $50/month late fee
Here’s the equation:
Amount Due x (Annual Percentage / 12) = Monthly Late Fee
You may want to play with some standard price ranges using this equation before you settle on what late fee seems most sensible for your business. With a documented paper trail you’ll have a much stronger position to not only force payment but likely get your late fees as well.
