Over the past couple of years we have moved over to builders work.
Smaller custom builders doing anything from mid to high end renovation upto 10 apartments.
It makes up about 50-70% of our work now and am experiencing all the classic problems with builders slow payments.
The general practice seems to be. Pay me a deposit because they are behind schedule and want me to push the job out quickly, drag out a progress payment that I am too busy run off my feet finishing the job to chase it up and then when the job is all said and done and the final invoice is in go missing for a while, don't answer the phone ect. until the next job is ready and they are behind schedule then they pay up everything and the cycle starts again. Because our relationship with these builders is in infancy and we are a smaller operation I have always felt I owe em, if we are a bit late with a job (usually because of a flow on effect from there schedule or an unrealistic lead time) I hesitate to invoice quickly in fear of rocking the boat. Now that we have proven ourselves and we have good service, high customer satisfaction rate and all deadlines met I is time to strengthen my stance.
I'm over it, my cashflow is like a yoyo and I can see that the pattern is exposing my company to risk. I need to build up working capital for expansion but I'm forever waiting for overdue payments.
From the start of this year I have set up a payment schedule as follows.
Each builder has personalised terms with some extended due days ect. but the company standard is as follows for builders. Private Clients pay higher upfront (505) because they generally don't have a problem doing so.
40% upon install (or invoice get's sent early if cabinets in factory for a week or 2)
30% upon final completion.
If we are missing a handle or something small I leave a small retainer, maybe $500 or 2% depending on size of job so they have confidence we will come back and finish.
All invoices are 7 days from issue, I have accounting software set up to automatically send a reminder of overdue bill at 3,7 & 14 days and I make a call around the 7-10 day mark.
I am happy for builders to negotiate with me on extended days BEFORE COMMENCEMENT but I wan't to create a system to reduce our late payment days.
This is what I have come up with.....
-For every 3 days an invoice is late paid you lose a day off your next invoices due date. example if you are issued a 7 day invoice and you pay it in 13 your next invoice is 5 days.
-Once you get to 0 you are COD and pay before or on the day that stage is due, eg. install day or final completion day have a cheque ready.
-You can earn payment extensions or gain days back by paying early, i.e 3 days early payment increases your next invoice pay date by 1.
-Once an invoice is x amount of days late we stop works on jobs until a payment is made, No callouts, no supply of joinery for other jobs going on. If they let me know early that they wont meet a deadline or respond to overdue reminders this doesn't necessarily need to happen.
The second option I am considering is to offer a discount for on time payments, instead of reprimanding for bad behaviour I am rewarding good behaviour. Maybe even discount for higher percent payments in each stage. Not sure what amount to offer as discount. I guess some research into the cost of overdue payments on bottom line could help with this.
I'm banking on our responsive service, reasonable pricing and quality product to keep them coming back.
I'm happy to go hardline approach with private clients because they are generally one off and tend to work to a payment system without issue. At the end of the day the builder likes to "be the boss" and puff his chest out and call the shots, happy for him to parade around like a peacock all day, I,ll tell him how good he is but also need to get paid on time.
I've let a few builders go because they were terrible payers, Generally if they are bad with the books, they are bad with scheduling which in turn eats into our profit margin, burning the candle at both ends. Therefore figuring if they aren't happy to conform to a system like this they are bad news.
Sorry for the long post. Interested in seeing if anyone has done something similar or what approach they take to late payments.