To the outside world, running a business often seems easy. It’s just a case of earning money and paying suppliers, isn’t it?
But as every business owner can tell you, cash flow is where it gets complex. Late payments and bad debt can affect all aspects of your business, from when you can pay staff to whether you can settle crucial bills with suppliers. Reputation damage is one risk if you have bad cash flow, and the closure of your firm is another.
As a business owner, how can you mitigate this risk? What steps can you take to cut the chances of payments failing? This blog post will help you find out.
1. Get to know your new client
When you take on a new client, it’s time to celebrate. But it’s also time to do some due diligence. A new client will ask for your references – so you should do the same.
Reach out to your network and other construction contractors and suppliers who deal with your client. Don’t be nosy but be polite. Find out gently if they have a good reputation or have had issues with payments. If this isn’t possible to do organically within your existing network, you can also engage a company to carry out a financial check. Corporate Scorecard is one of the most popular and inexpensive choices. Remember, a little market research now can save a big headache down the track.
2. Negotiate on your terms
You’ve sorted the references and you feel happy to work with your new client. What’s next?
In the subcontracting world, it’s not unusual for this to mark the moment at which the builder announces that the construction contracts won’t include your preferred exclusions, qualifications and terms and conditions. You may find that they pressure you to sign straight away – and with work often scarce, the pressure to agree is huge.
But it’s vital to negotiate on terms. This is where you have the chance to insist on how you want things to be done, and you can’t come back to this later. If your workforce is mainly labour-based (so carpenters, form workers, reo fixers, concretors and so on) you will most likely have a weekly wage bill to pay, so you should be requesting regular payments from those up the chain.
If your work involves a design component (electricians, mechanical, plumbers and so on), you may incur an upfront cost, so you should insist that a cost for design is to be paid prior to works starting. And if the documents show items you haven’t allowed for, this is your chance to make sure it is changed to reflect the agreement.
Once you have the contract, review it, send back comments and don’t sign or start work until it reflects what you’ve agreed.
3. Challenge short payments
Fast forward a little. You’ve done a month’s work, so you submit a payment claim and wait patiently for the money to hit your account.
Then the builder’s payment schedule hits your inbox. Turns out they’re paying a lot less than you claimed. Maybe they say you’ve done less work, there are defects, or they have back charges. After looking at your outgoings you realise the short payment means you can’t afford to pay suppliers and bills – or, even worse, your staff.
The builder is, sadly, completely within their rights to do this. The good news is that you are within your rights to challenge it.
Learn more about our contract review service
If you strongly disagree with the assessment, you should respond immediately, always in a tactful, professional manner. Often the person assessing your claim will be reviewing many claims in a short timescale – so it’s best to give them the benefit of the doubt. They may have missed something because they are overworked or made a simple mistake.
Often this is the reason for short payments. And any reasonable builder should welcome a friendly discussion – and may even be open to revising their assessment.
If things aren’t resolving, though, you may need to call in some help. At Kingsbridge Consulting, we’re happy to give obligation-free advice on such matters and we recently turned a $20,000 assessment into a $60,000 payment for one of our grateful clients. This helped them avoid a lengthy dispute, not to mention a cash flow nightmare.
You can reach us by calling 0450 044 181 or contact us here.