Do you find it almost impossible collecting money owed and managing poor cash flow as a result from long delays in payment? Like most small business owners I get frustrated when general contractors give me a hard time when a payment is due. It seems as though they try to make us feel guilty for wanting our own money or they refer to us as peons that aren't worthy of there time.
I could understand their actions if we were asking for payouts prematurely, but this is usually not the case. As specified in our contract, which they approve and sign, we don't invoice for an amount equal to a certain percentage until or after we have reached that date. Nevertheless, GC's almost always find a way to hold on to your money even after the job is completed. It's borderline criminal.
The worst is when they nickel and dime you to death with extra work that is not in the original contract and expect you to do it at no cost to them. This happens even with the more reputable GCs.
I suggest at the first sign of delayed payment, you pick up your tools and leave. It should get their attention, and of course they will threaten you with the worst; but most of us are only small businesses and have maybe two jobs going on at the same time so inevitably our cash flow suffers.
Not all GCs' or their attorneys are trying to put it to the little guy, but they all have their interest and not yours at heart.
Many of you have been in this position, where things get tight once in a while. I know it sounds like you're biting the hand that's feeding you, but the problem is that it's not feeding you The old saying that the squeeky wheel gets the grease is true. We should start squeeking.
No pay no play. Refuse to work for any contractor that hands you a book/contract to sign because 9 times out of 10 they are going to shaft you.
You could offer a discount of 5 percent if the final bill is paid the same day the job is completed. You should also call the day before you plan to be finished and inform the client/GC that you will be completing the job and will be expecting the final payment. On more than one occasion I have been told that we have to wait until the bank or city inspector comes to inspect. My reply is always "When is he coming? We'll be there the day before, or the same day, to finish up."
We're not banks. We are not in the buisness of lending money interest-free. Which is exactly what we do when we let anyone charge or delay payment.
The private sector usually gives me no problem, 50 percent down, and the rest when done. But large contractors just plain take advantage of small guys. That's where communication is important, you should always have your own contract for them to sign, and payment schedule to follow. If they don't adhere, production stops, and you go on to the next thing that will bring some cash flow. Then they have to answer to their client about why the work is not getting done.
General contractors bill their clients every two weeks to keep their own company going, so the thirty day wait is B.S.
We're not banks, and talking to GC's and letting them know where you stand is the best bet. Don't be afraid to let them know you're a small company and will get the job done -- just tell them where you stand and ask them where you stand in terms of payment. Honesty is always the best policy even if the GC is mud.
I suggest charging these contractors that are late on payments more the next time around. Sure, you might not always be the lowest bidder, but then another shop will get stuck waiting, and eventually jack their price, too.
Anyway, you don't stay in business by being the lowest bidder all the time. If you charge more, then you can buy better machinery, hire better employees, and in turn put out a better product for higher profits.
A friendly letter stating that their account is past due, and you will be forced to put a lien on the property until payment is made, may do the trick. Maybe this could also be included in the contract; then you can say, "Well, it was in the contract that this would happen."
As far as a lien is concerned, this is tricky and it varies from state to state. In Virginia you only have 90 days from the delivery date to file a lien. Plus there are other considerations. I would contact an attorney in your town to find out all the details.
If someone can't pay you in a timely manner I wouldn't mess with them. You should have a strict policy: we get paid in 30 days or you don't get any more product, period, no exceptions. You may say I will lose business, but if this is how they operate, can you afford their business anyway? I couldn't. We have bills to pay and we aren't the bank, which essentially is what they are using you for.
They have your money.Beware of people or companies who do not stay with one contractor or who have employee problems. Ask for references -- they ask you, so you can ask them.
One tactic that works for collection is embarrassment. Go around to the contractor's job sites asking where he or she is, stating he is 60 days past due. If you confront him, do it in public with a crowd around. It ain't pretty but it works as a last-ditch, "I may never get paid" tactic.
As for the GCs, except for retainage, they each have unique billing cycles. But so what. You are doing work for them.
You set the terms. Some ask for invoices once a month, submit them on the 10th of the following month, and get paid 30 days later, which adds up to about 55 days if you invoiced on the 25th and got paid on the 20th, two months later. That is B.S.
You should communicate with the GCs you work with, and know their billing cycle, and why it takes so long to get paid. If they are not chasing the money then they aren't doing their job. It is all about getting paid in a timely manner and you need to find or work with GCs that understand that subs that are paid on time are loyal subs.
Dealing with private owners directly is my preferred work but most of our jobs involve contractors.
Contractors are going to use us and and the rest of the trades as a bank. Expect that up-front in your bid. Reward good-paying contractors with lower bids, and tell them you are. Bid slow-paying or problem contractors high bids, but always bid.
Stay in touch with contractors on progress and create a paper trail on all items involving cost to you. Favors cost you; get change orders instead. Bill according to your contract, promptly.
Charge enough to start with. Do you really know your job costs and overhead? Do you realize a profit annually, and are you creating long-term assets?
I had cash-flow problems until I realized: That's my money, not theirs. I want mine, now.
Good communication is the key. The contract is the best form of communication, because it can always be referred to at a later date, if there is some question about the terms.
Don't be afraid to ask why you're not being paid, and try to work with your customer to stick with the terms. The biggest problem in dealing with GCs is that you're never talking to the person who is actually pulling the trigger. Get to them, and you'll usually find your money.
Final Thoughts:I developed a simple and easy method to deal with that don't pay on time or how you want to be paid. It is called a contract which spells out exactly what is due and when. Since Virginia has a mechanic lien law, I do not hesitate to use it on those that try dragging out the payment. One point - is make sure up front that you expect payment - you are a professional delivering a service and you are owed your due. Once the GC starts trying to explain that he does not work that way, smile and say goodbye. Believe me - it is better having two or three general contractors that pay on completion than chasing ten or more around trying to collect payment.
I started working as project manager for a small EIFS company in 1991. I had never worked in the construction business before, and was told by the office manager that I "just didn't understand how the GC's do business." Well, I saw very quickly how they did business - one contractor was 6 months past due!
I wrote the contractor a firm but polite letter asking for payment. After one week, I called his office and spoke with him. He gave me a keystone above a window that needed attention. I told him I would be glad to take care of it for him, scheduled a service call to the house with another call we were making to the area, and asked him to meet our guys at the home with a check. Our guys brought a check back for payment in full and I allowed him to save face.
The office manager whined about how we would never hear from that contractor again because I had probably p***ed him off. The contractor called the next day to ask us for a bid on his next project and told my boss how much he looked forward to working with me. Today I own the EIFS company.
I have found that to collect from most contractors, I just need to remain polite and professional, but persistent and firm.
Bottom Line:Expect final payment on installation! If they can't be there with the money at that time, they can pay the day before. Most general contractors will trust other craftsmen as much as they trust themselves. Whatever they do, don't let them hold your money. If you earned it, it's yours. Remember, a few GC's like to play musical chairs with your money. They will recieve your money from the homeowner or bank, and spend it elsewhere. Whatever you do, never be bashful or intimidated to ask for what you have earned. Present your bill in person and keep your hand out till you recieve your money.
If you have to sit on (lend) money to your GC's/customers like you're a bank, charge them a handling fee just like a bank. If you have customers that are routinely late, change your contract to include a late fee and interest.
Lately there is alot of talk about getting an EIMA approved this, or an EDI certified that. That's fine and good, but where were these two so-called non-profit organizations in the early 90's when everybody and there respective mother's could be found slapping foam on wood all across the country. Shouldn't they have known that EIFS and wood don't mix? I think they should have. The amazing thing is that they apparrently still don't see anything wrong with EIFS on wood.
Who appointed them as the voice of EIFS. I certainly did not. Don't put all your trust in them because they were the so-called leaders of the industry when all of the problems arose.
