In the construction industry, managing cash flow is crucial. Whether you’re a contractor, subcontractor, or supplier, unpaid invoices can severely affect your business’s bottom line. Recovering past due invoices is a challenge many construction businesses face, and when clients or general contractors delay payment, it can create significant financial strain. Fortunately, there are effective debt construction strategies to recover these types of overdue invoices and safeguard your business’s financial health.
Preventing Late Payments Before They Occur
Before diving into strategies for how to collect past due construction invoices, it’s important to establish practices that minimize the risk of late payments in the first place. Here’s how you can protect your construction business from the start:
- Clear Contracts: Ensure that all payment terms and credit terms are clearly stated in your contracts. Outline specific due dates, penalties for late payments, and any mechanics lien rights you may have. Having a clear credit policy can help avoid payment disputes later.
- Progressive Invoicing: For larger projects, use a system of progressive invoicing. This allows you to bill in stages based on project milestones, helping you avoid the risk of unpaid final payments.
- Credit Checks: Before signing contracts with new clients, perform credit checks to assess their ability to meet payment obligations. This can help you avoid bad debt from non-paying customers.
Despite these preventive measures, past due invoices are still a reality for many construction businesses. That’s where the right recovery strategies come into play.
Following Up on Overdue Invoices
As soon as an invoice becomes past due, timely follow-up is key. Start by sending invoice reminder emails that are polite yet firm as soon as the invoice from the obligee is a few days overdue. Ensure you maintain a professional tone in the body of the email and include the original invoice for the recipient’s reference. A past due notice email can be an effective first step.
If the initial reminder is ignored, follow-up with a polite reminder phone call to the client. Speaking directly to the client can sometimes expedite your payment collection efforts and improve accounts receivable management.
Lastly, don’t forget about payment penalties. If you’ve outlined late payment penalties in your contract, be sure to enforce them. Adding late fees encourages prompt payment by creating a sense of urgency and due diligence.
If these steps don’t result in payment, it’s time to consider stronger measures like sending a formal request for payment.
Issuing a Demand Letter
When initial reminders don’t work, sending a formal demand letter can emphasize the seriousness of the situation. A demand letter clearly outlines the overdue amount and sets a final payment deadline before legal action or formal debt collection efforts are pursued.
A strong demand letter for payment, also known as a notice of payment letter, should include the amount owed, invoice details, and potential consequences like filing a mechanics lien if payment is not received. A sample demand letter for payment of services rendered or contractor demand letter can provide a helpful starting point.
Unfortunately, issuing a demand letter does not guarantee the recovery of a construction contract. If following up and issuing a demand letter still doesn’t lead to payment, it’s time to partner with a debt collection agency. A written demand for payment from a collections agency shows you are serious about recovering the debt.
Using NPG Associates for Construction Invoices
At NPG Associates we are highly effective in recovering past due invoices in the construction industry. We can help with all aspects of the collections process, from sending a professional collection letter template to filing a mechanics lien or bond claim if needed. We understand the nuances of construction debt collection, including state collection laws.
Don’t let overdue invoices jeopardize your construction business. Let one of our skilled bond claims specialists help you file a claim today. Contact us today to learn how we can help you recover the compensation you’re owed.
