| Spring 2005 |
Construction Advisor
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If You Build It, Will They Pay?
Is there a worse investment than lending money for free? Probably not -
except working for free.
Some construction firms end up doing both - by failing to collect what
they're owed. In today's environment of aggressive bidding and thinner margins,
that can be costly. And these very conditions may push contractors outward,
toward new customers with new and unfamiliar payment routines.
Here are some straightforward steps you can take to bring collections under
control.
Know Your Rights
The right to payment rests upon lien laws, for which we can thank our colonial
forebears. An unpaid contractor can cloud an owner's title and even seize
property. Track invoices carefully, because you may have little time in which to
file a lien. As the filing deadline approaches, don't hesitate.
Know Your Customer
Are your new customers reliable? Don't be surprised after the fact: Check
credit, litigation and lien history carefully. Subcontractors should know about
a general contractor's reputation and ability to collect from an owner.
Agree On The Rules Ahead Of Time
Build in protection with a detailed pre-construction meeting of the owner,
the contractor and the financing source. Resolve payment terms, documentation
requirements and other issues that might delay payment. Retainage is standard on
construction jobs, but you may be able to negotiate terms.
Bill Promptly And Precisely
For example, understand your customer's payment cycles and bill accordingly.
Don't suffer a 30-day delay because your invoice arrived after your customer's
processing deadline.
Manage Change Orders Aggressively
Resist pressure to act on verbal agreements or work tickets; instead, obtain
signed, specific documents. And don't let COs pile up, or you'll have little
leverage when your customer insists on rolling them into post-job negotiations.
Editor's Note: A well-run collections plan makes a significant
contribution to positive cash flow. Bober, Markey,
Fedorovich & Company frequently works with clients on matters such as
this. Please call your partner / manager contact if you would like assistance in
this area.
The Construction Advisor is produced
quarterly by Bober, Markey, Fedorovich
& Company's Construction
Services Team. If you would like additional information about the services that
we can provide to construction companies and contractors, please call or
email our team leader, Dale A. Ruther, CPA, CIT at (330) 762-9785 or dale@bobermarkey.com.
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