Contractors need to get paid so their companies can remain solvent. While most people pay without any issue for the projects they have done, there are times when that doesn’t occur.
Collections are probably something that many contractors didn’t think they’d have to actively practice. When you consider the vast amount of resources it takes for planning, supply procurement and manpower, it’s easy to see why even a small percentage of non-paying clients can be devastating.
Any contractor who’s in this position should consider these tips for collecting on accounts.
Use written contracts and detailed invoices
Before a project even begins, having a solid contract in place can lay the groundwork for smoother collections. These contracts should clearly outline payment terms, project milestones and late payment penalties.
Once the work is underway, companies should send detailed invoices that specify what work was completed, when it was performed and how much is owed. This makes it harder for clients to dispute the charges and easier to prove the debt if legal action becomes necessary.
Document everything and stay proactive
Accurate documentation can be a powerful tool in collections. Keep records of contracts, communications, change orders, delivery receipts and time logs. If a payment is late, follow up with a friendly reminder as soon as the due date passes.
Many companies also benefit from sending a formal demand letter, which may prompt payment without further action. These letters should be professional, firm and reference the original agreement.
Leverage lien rights and small claims court
Contractors, subcontractors and suppliers have the right to file a mechanic’s lien. This legal claim against a property can create pressure for payment by encumbering the property title. However, lien laws often require strict compliance with deadlines and notice requirements.
Alternatively, if the amount owed falls within the limit for small claims court, filing a claim there can be a cost-effective way to recover funds without needing a drawn-out legal process. Determining the best option for your company may require you turning to someone familiar with these matters for assistance.
