Payment delays are a persistent challenge in the construction industry. Whether caused by inefficient billing processes, disputes, or slow approvals, late payments can strain cash flow and disrupt project timelines. Contractors should be proactively taking action to mitigate delays and ensure steady revenue.
Below are proven best practices to help you get paid faster:
A well-drafted contract is the foundation for timely payments. Ensure that your contract clearly outlines payment terms, schedules, retainage policies, and penalties for late payments. Specify the required documentation for invoicing and any conditions to be met for payment release.
Ensure all necessary job details, including scope, contract terms, and payment schedules, are documented upfront. Keeping accurate and organized records minimizes disputes and speeds up the payment process.
The sooner you send an invoice, the sooner you get paid. Most contracts have a set billing date in the month (such as the 10th, 15th, or 20th), so it’s crucial to know and adhere to these deadlines. Establish a routine for prompt invoicing—weekly, bi-weekly, or monthly—to keep payments flowing consistently and avoid unnecessary delays.
Don’t wait until payments are overdue before taking action. Automate reminders for outstanding invoices around aging status to maintain communication and ensure clients know of upcoming or overdue payments.
Regularly reviewing your accounts receivable helps you stay on top of outstanding invoices. Implement a tracking system to quickly identify late payments, update projected payment dates, and take necessary follow-up actions. Giving Project Managers access to invoicing data ensures they can track payment statuses, follow up on outstanding invoices, and address any issues proactively, helping to accelerate cash flow and keep projects on track.
Errors on invoices give clients an easy excuse to delay payment. Double-check all details before sending, including:
Clear and visible payment terms
Specify due dates and penalties for late payments. Whenever possible, strive for Net 30 terms to maintain consistent cash flow, and be mindful of contracts that include “pay-when-paid” clauses, which can delay your payment until the client receives funds.
Customer contact information
Ensure invoices are sent to the right person to avoid unnecessary processing delays.
Invoice details
Include job references, descriptions, and amounts due to eliminate any confusion that could slow down approvals.
Making it easier for clients to pay can speed up the process. Accept multiple payment methods, such as ACH transfers, checks, and credit card payments.
Start using a construction financial intelligence platform like ProNovos to automate invoicing, track payment statuses, and provide real-time insights into outstanding receivables. Digital solutions streamline approvals and reduce the risk of human error.
Missing paperwork can cause significant payment delays, so having all required documentation ready is essential. Depending on the project, necessary documents may include lien waivers and releases (either conditional or unconditional) to prevent delays, certified payroll reports for government contracts, and W-9 forms or Certificates of Insurance (COI) for tax and insurance verification. Ensuring these documents are complete and submitted on time helps streamline the payment process and avoid unnecessary holdups.
Use analytics to track overall payment trends and identify individual client behaviors. A billing dashboard can help you spot recurring late payers, allowing you to adjust terms, require deposits, or implement stricter follow-ups.
Retainage can significantly impact cash flow, especially on long-term projects. Request partial retainage release at 50% project completion to alleviate financial strain and maintain liquidity.
Mechanic’s liens provide a legal pathway to recover unpaid work. Ensure you comply with lien notice deadlines and documentation requirements to preserve your right to file a lien if necessary.
Reducing payment delays requires a proactive approach, from contract negotiation to leveraging digital solutions. By implementing these strategies, contractors can improve cash flow, minimize financial risks, and keep projects running smoothly. Investing in financial intelligence tools and strong contract management practices will pave the way for more reliable and timely payments. For a deeper dive into actionable strategies, download A Contractor’s Guide to Getting Paid Faster. This guide covers best practices for accelerating payments, mastering invoicing, and analyzing accounts receivable to keep your cash flow strong. Download your copy today!
