Late payments are frustrating, and they can damage your construction business. They wreak havoc on your cash flow, making it difficult to move forward with new construction projects, waste time as you chase down the in-arrears invoices, and strain professional relationships.
One found that contractors' project costs went up an average of more than 5% when they had to float the expenses of labor costs and supplies, and nearly a third had to delay or stop a construction project thanks to late payments on their invoices.
Despite these drawbacks, late payment is a reality in the construction industry. The complex business relationships on a construction job exacerbate the problem 鈥� money trickles down from the property owner and has to make it down the pipeline from the general contractor to contractors and subcontractors. The further down you are, the longer it may take to get paid.
What you can do to get paid faster
Construction leaders are working hard to rid the industry of late payment problems by regulating payment timelines. However, your invoicing process could make a difference, too.
The way you invoice may also impact how quickly you collect accounts receivable. Quick, easy-to-read, and detailed invoices can make it easier for your clients to reconcile and send payments for your services. Here are some of the key elements you should include in your invoices to get paid faster.
What to include on a construction invoice
Think of your construction invoices as legal documents. That doesn't mean an invoice needs to be a 15-page document filled with inexplicable jargon, but it does mean that the words you include on your invoices actually mean something. You need to take care of what they say.
Here are some elements you on your construction invoices.
Your information
An official invoice must clearly state your business name, address, and contact information. Including this information makes clear who鈥檚 expecting payment, and how you can be reached with any questions.
Client information
As an official document, your invoice should include the client鈥檚 name, 聽contact info and business address so there鈥檚 no doubt who the bill is for. The information on the invoice should match what鈥檚 written on the contract.
An invoice number and invoice date
A unique invoice number makes it possible to easily document, track, and refer to the invoice. Include this detail on your invoice and in your company's accounting system.
Include the invoice date so that you and the client can see when you created the invoice. The invoice date should be as close to the mailing date as possible.
Detailed description of services
Don't make your client guess what the invoice is for. Give an itemized list of the construction work you've done. You won't have space to write a book (and you wouldn't want to), but you and the client need to be able to refer back to the invoice out of context and make sense of it.
The price and quantity of each unit of services
Now that you've described the construction work you've done, break down the prices of the total cost in line items. When billing for services, quantity measurements may be in the number of hours or a set project price. Detail the type and number of each material you used, too.
Detail gives the document legitimacy and alleviates some of the sticker shock your client may experience when they first see the invoice.
Contract number
Include the contract number on your invoice as evidence that you were authorized to proceed with your services at an agreed-upon cost.
The terms of payment and instructions
Set out the length of time within which you expect your client to pay for your services and set a specific payment due date for prompt payment.
Include the details of payment options, i.e. how you can be paid. Information like "checks to be made payable to" or ETF details take away the guesswork for the client and improve the odds of prompt payment.
Take it a step further by including a clickable payment link on an electronic invoice to take away many barriers to payment. 吃瓜新闻 makes it easy to copy and paste unique payment request links into the invoice you send to your client via email address.
Invoicing best practices to improve your billing process
Now that you know what to include on each and every invoice, you should give some thought to how you invoice. Here are some tips on when to invoice, how long your payment terms should be, and when to follow up on overdue payments.
Prompt invoicing
Send invoices quickly. So many contractors fall into the trap of procrastinating invoices, but a few problems result from waiting. First, by invoicing when things are fresh in your mind, you'll remember all the details of the work and be able to charge accordingly.
Invoicing promptly ensures your clients are more likely to remember the work you've done too, and they're always more likely to pay if they know what they're paying for.
Finally, the longer you wait to invoice, the more time you're left fronting the cash for your operations, which can be disastrous to your business' finances. Get in the habit of sending invoices at regular milestones and the final bill soon as the work is complete.
Short payment terms
Payment terms can be anywhere from a week to a few months, but keep in mind the longer you wait to get paid, the harder it will be to collect. The general rule is that in the first after an invoice is sent, your probability of successfully collecting the balance is 90%. The likelihood of collecting becomes significantly worse as weeks pass by, though, such that your chances of successfully collecting on an invoice sent 180 days ago is just 1 in 5.
Give your client enough time to process the invoice through their AP department, but no longer. Then, follow up on client inaction.
Reminders
Payment reminders make many people feel awkward, but this is not the time to be reticent. Inquiring about an overdue payment is not personal; it's business. Send a "friendly reminder" a few days before the invoice's due date, then another as soon as the due date has passed. You are refreshing your client's memory, and you're also creating a trail of documentation about the money you're owed. With 吃瓜新闻, you can send payment reminders with a single mouse click.
Make it easy to pay
Make it really, really easy for your client to pay the bills. All of the tips above should make it easier for your clients to pay their bills. Invoicing with plenty of details reminds clients of what they're paying for while providing all your information smooths their payment efforts. Reminders jolt them into action when they've been putting off sending the funds.
Want to make it easy for your clients to pay their invoices? With 吃瓜新闻, you can:
- Send electronic payment requests via email directly to your client so you know your invoice didn't get wedged in between the truck seats.
- Include a payment link right on the digital invoice, then track payments in real-time.
- Send payment reminders for past-due accounts.
Ready to level up your construction invoicing? Make it easy for your clients to pay invoices with 吃瓜新闻. with your free account today.
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