You’ve closed the deal, signed the contract, and begun—or even completed—work on that new piece of business. Now comes the fun part: getting paid.
While contractors increasingly are turning to an app or software package to bill customers on-site when a job is complete, invoicing continues to be a major issue for many field service professionals. And let’s face it: failure to invoice customers quickly and accurately can significantly impact your bottom line and, ultimately, your ability to stay in business.
Billions Lost
According to research by MarketInvoice, contractors lose approximately $19 billion annually due to customers paying invoices late, not paying bills at all, and refusing to pay interest or late fees. Obviously, chasing after customers to collect delinquent payments is time-consuming and expensive in terms of time and effort that could be devoted to more profitable pursuits. Late or non-payments also impact cash flow, hurting the contractor’s ability to pay workers (or hire new ones) and purchase new equipment. Dun & Bradstreet estimates that 90% of small business failures are caused by poor cash flow.
What can contractors do to get paid faster? The obvious answer is to invoice as soon as the work is done, but there’s more to it than that beginning with the terms of the contract the customer signs before work begins. In addition to a quote providing the customer with an estimate of how much the work will cost, the contract should include:
- Payment terms which specify whether a deposit is due before work begins, how long the customer has until the payments are due, how subsequent payments should be made, and payment plans over time
- Any discounts or incentives which apply for customers who submit payments early
- A late fee policy which spells out whether any late fees or penalties will be due on invoices not paid on time
While these policies are included in the customer contract, contractors should use their invoices to reiterate them and to encourage customers to pay on time (or early). Invoice payment terms, for example, should go beyond specifying how payments should be made to include incentives designed to promote early or on-time payments.
One way to do this is by requiring a deposit before starting work. Doing so helps to ensure that the contractor has a steady cash flow to cover project expenses, which is particularly important on big projects. The cash flow will also help in meeting other business expenses, such as salaries and facility costs.
Payment Terms
Contractors can also encourage immediate payment by altering the standard way payment terms in their invoices are expressed. Typically, contractors use the "Net D" format to convey the number of days from the invoice date until the payment is due. Net 30, for example, means the full amount specified in the invoice is due 30 days from the invoice date. By adding a few numbers, though, the contractor can show discounts available for early payment. An invoice with the payment terms "2.5/10 Net 30" means that the customer will get a 2.5% discount if they pay the total amount within 10 days from the invoice date.
No matter how payments are incentivized, though, some customers inevitably will miss payment deadlines. To ensure minimal conflict with such customers (and get paid), the late fee policy spelled out in the original contract should be reiterated in the payment terms of the invoice. It’s also advisable for contractors to discuss this policy directly with customers before starting work to make certain there are no surprises.
Line-Item Description
Beyond invoice payment terms, there are several steps contractors can take to get invoices to customers quickly and (hopefully) speed payment. If a particular project is being billed by the hour, it is important to maintain an accurate record of how many hours have been spent on the work. Regardless of whether this is done by using a work diary, mobile phone, or invoicing software, it is important to clearly and accurately describe when work started and finished, and what tasks were performed. Doing so makes it easier to provide a line-item description of the services rendered in the invoice details. A line-item description also makes it easier for customers to know exactly what they're paying for.
The fastest way to get paid quickly is to send the invoice as soon as the job is completed—or better yet, present it immediately via your mobile device. Providing an invoice on the spot makes it easier for the customer to process since the work is still fresh in everyone's mind. The customer can easily track what is owed, budget to pay for it, and recall other details about the job, such as when they requested it and when it was started.
Bottom line, there are numerous steps contractors can take to make sure accurate invoices are delivered quickly to customers. The pressure is on contractors, though, to make sure those steps are taken. The continued existence of their companies, after all, likely depends on it.
Ralph P. Sita, Jr., CPA is a lifetime successful serial entrepreneur. Prior to co-founding FieldBin he co-founded the online cybersecurity learning platform, Cybrary, with over 3 million users. Sita is also CEO and Founder of TrainACE, a brick-and-mortar advanced security computer training company. For more information, visit https://www.fieldbin.com/