Customers pay late, or don't pay at all
The company waits for the money, and the follow up only starts after the due date has passed.
A company can't pay people with money it doesn't have, and it also has to collect the money it directed the work on. Most people lean on pay when paid and never pursue the payment. In a company that collects, the accounting team sends a weekly aging report, and the PM checks two weeks before each payment is due that it's on the way. If the contract's deadline passes, the accounting team sends the notice of nonpayment with the intent to lien. Whether to sue, and where, is a question for an attorney.
Three moves, in order
Step 07: Monthly cadence
Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.
Learn this part of the job
SPM The Construction CFO publishes this course. It's a separate company from this one, and the course is on its own school site.
Other problems step 07 solves
Other things that go wrong
What owners ask
How to deal with customers who pay late or don't pay at all?
The company waits for the money, and the follow up only starts after the due date has passed. A company can't pay people with money it doesn't have, and it also has to collect the money it directed the work on. Most people lean on pay when paid and never pursue the payment. In a company that collects, the accounting team sends a weekly aging report, and the PM checks two weeks before each payment is due that it's on the way. If the contract's deadline passes, the accounting team sends the notice of nonpayment with the intent to lien. Whether to sue, and where, is a question for an attorney.
Which part of the system fixes this?
The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It's drawn from chapter 7 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% after taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Send the aging report every week, to the PM and to leadership.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 07 depends on step 03, overhead calculation and step 04, estimating system and step 05, software and bookkeeping alignment and step 06, project management. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.