Collecting Payments From Clients
It’s not unusual for contractors to have problems getting clients to make payments on time, or to make full payment as outlined in the agreement.
Here’s Some Advice.
When you present the contract to your potential client, be sure to verbally review the entire payment schedule with him. Ask if he has any questions and tell him that you expect him to follow that payment schedule to the letter. Let him know you will not provide invoices; instead, the payment schedule as outlined in the contract is his notice of payments due.
Then, if the payment is slow or not the full amount, you meet face to face (no phone calls, texts, emails, etc.) and remind him the payment is overdue. Do not wait too long – if the payment isn’t made within two days of when it’s due, it’s late and it’s time to say something. Let him know that if the payment isn’t received in your office within 24 hours, you will shut the job down and file a lien on the property as outlined in the contract. Remind him that you do not travel to pick up checks, it is up to him to bring that check to your office.
In most cases, one warning will be enough. You will get your money and he won’t be late again. However, if he is late a second time or he tries to give you less than full payment, then you simply shut the job down. No excuses, no rationalizing, no stories. Shut the job down. In many cases, the client has planned this approach from the beginning. He wants to see what you will do when he doesn’t pay you.
“You’re Making Too Much Profit; I’m Not Going To Pay You Anymore.”
Your client, with the job about 75% complete, has decided you are making too much profit on his job. A warning sign of this coming is when he starts asking how much things cost. Or, he starts making comments about “rich contractors” and it gradually progresses until he refuses to make the final payment, claiming he is paid all he is going to pay.
If this happens, in a businesslike manner and voice, point out he signed a fixed figure contract and by refusing to pay you, he is now in default. Tell him he has 48-72 hours to make the payment outlined in the contract, or you will take whatever action is necessary to enforce the contract.
Never tell a client what you intend to do. Just tell him you will enforce the contract – and then do so.
Send your notice of intent to lien, file the lien, and start foreclosure if that is what it takes to get paid. Never let clients pull this nonsense on you and not challenge it. This is a game many people play just to see what they can get away with. Of course, these procedures should be outlined in your contract, you are simply doing exactly what you have already declared you will do if the client defaults on the agreement.
A related event is a request for receipts or time cards. Simply say “No.” In almost every case, when a contractor shows receipts, it invariably leads to an argument about the price of the job.
Stop The Argument Before It Starts
No contractor wants to get into an argument with an owner. But believe it or not, some owners are more than willing to start an argument if it keeps them from having to pay you.
There is one phrase you need to remember, and you should use it when an owner questions what you are doing or why they need to make a payment. “John/Mary, let’s see what the contract says about ____________.” Then pull out the contract (you should always have a copy available when you are on the job site or visiting with an owner), open it to the desired paragraph, and read it aloud. Then you follow up with “That work isn’t in the contract, John/Mary. But we will be glad to do that work for you by way of a Change Work Order. But as you just heard, it is not a part of our agreement.”
In most cases, that will be the end of the subject. He might mumble something about thinking it was a part of the deal, but most people are honest and when they know you are right, they will let it go.
If you have written a good contract, your penalty clause in your contract (after you have shut the job down) should be substantial enough that if he doesn’t pay you, it will cost him several hundred dollars, plus your legal fees to collect.
Never let an owner drag you into an argument. Keep all disputes between the owner and the contract. As long as you have written a good contract, you almost always have happy clients and payments on time.