Even with streamlined digital payment methods, contractors must handle late payments.
The problem is widespread in construction and remodeling. American Express found that one in five contractors received at least one payment more than 90 days (about 3 months) late. More surprisingly, only 11% of contractors said they get paid in full for every job.
The survey also found that contractors spend 44 hours (about 4 days) per month managing finances. If you are a remodeler juggling many projects, you likely don’t have time to chase down late payments. Reducing late payments can also lower the time spent on such admin tasks.
In this article, we will take a deeper look at the impact late payments have on remodeling businesses. Then, you’ll learn strategies for lowering the number of late payments for your business. We’ll explore the role digital payment methods have in solving this problem. Finally, we’ll end the article with steps you can take right now to start addressing late payments.
RELATED ARTICLE: How to Grow a Service-Based Business
The Impact of Late Payments on Remodeling Businesses
Late payments hurt every business.
This is because your income is not just about collecting profits. You must pay vendors and suppliers or cover materials costs for your next projects.
If you have a small- or medium-sized business, you likely do not have large cash reserves. You can’t sell stock or move resources to get more cash like a corporation would. Cash flow comes from customers paying their invoices. This is why chasing down late payments quickly is so important.
Here is a closer look at the problems you might face if your clients don’t pay on time.
6 Strategies Remodelers Can Use to Reduce Late Payments
If you reduce late payments, you can avoid many of these problems. There are several different approaches to addressing late payments. For instance, you can structure client agreements strategically to encourage on-time payments. Or you can use automation and provide a range of payment processing options.
You will find that a combination of strategies will work best. Use some or all of the following ideas to combat late payments in your remodeling business.
1. Create Clear Payment Terms
Clear payment terms can help you avoid misunderstandings. Outline the due date in the payment agreement clients sign before you start work. Mention how and when they need to pay. You can also add information on penalties or late fees to the agreement. Customers will see this and understand the consequences of paying late.
Clear agreement language leaves no room for misunderstandings. They also give you legal options if the client refuses to pay. The payment terms can serve as evidence in a civil case or during negotiations with lawyers.
2. Streamline Invoicing
Streamlined invoicing benefits both you and your customers. You can use software to generate invoices automatically. You can send them electronically via email. Or you might host the invoice in the cloud and give customers a link to access it via computer or mobile.
Immediate electronic delivery and easy access make it simpler for customers to pay promptly. It allows you to cut down on paperwork. Remember that the average contractor spends more than 40 hours per month on invoices and payments. Streamlined processes can significantly reduce the time spent on admin tasks.
3. Automate Payment Reminders
Find an invoicing platform that allows you to automate payment reminders. This feature lets you send reminders without having to compose emails by hand.
Ideally, the system will let you create different follow-up messages. For example, you can gently remind customers the payment is due. Or warn them that the due date is approaching, and they may incur fees if they are late.
These reminders can help reduce the time you spend chasing down payments.
4. Offer Different Payment Options
Make it as easy as possible for clients to pay their invoices. Offer to accept checks, cash, and credit or debit card payments. Also, consider ACH bank transfers, cashier’s checks, mobile wallet payments, and other options.
The different options give customers added convenience. They can pay the way they feel most comfortable. Also, the diverse payment choices eliminate a common excuse for non-payment. The customer cannot say that you don’t accept their preferred means of payment.
5. Use Benchmarks
Instead of waiting until project completion, you can ask for payments when you meet certain benchmarks. This option can be useful for large projects. You can ask for payment when you complete pre-defined steps. For instance, you might send an invoice when you finish each room of a whole-house remodel.
This option can help with cash flow during long projects. Also, you have the choice to stop working on the remaining tasks if the client pays late.
6. Consider Credit Checks
In some cases, you may use credit checks to see if your clients usually pay on time. Credit checks come at a cost, but the expense may be worthwhile.
You can manage your risk using this information. If a client has a low credit score, you might consider asking for an upfront payment. But, if they have a history of on-time payments, the risk of late payments is lower. You can use a standard invoicing strategy.
FROM ONE OF OUR PARTNERS: What Are Electronic Payments? Everything Your Business Needs to Know
The Benefits of Embracing Digital Payment Solutions
Digital payment methods can help clients pay on time. If you offer different options, they can easily choose the one that’s convenient for them. This can proactively address excuses for late payment.
Here are four payment solutions to consider and the benefits they offer.
Online Payments
Online payment systems allow customers to pay through a web browser. They can use a credit or debit card or digital wallet like PayPal.
Benefits: Customers will find this option convenient and familiar. They can log on from anywhere and make the payment. And the process will be intuitive for anyone who has made a purchase online.
Mobile and Digital Wallets
Mobile and digital wallets are becoming more popular. Digital wallets include PayPal. They permit you to add funds and make payments online or via an app. Mobile wallets like Google and Apple Pay allow you to hold credit or debit card information. You can then use the wallet to make a payment rather than using the card directly.
Benefits: These options have two advantages. First, they are convenient. Customers can make payments even if they don’t have a debit card or cash. Second, they add a layer of security. Mobile wallets use encryption and tokenization to keep card data secure. This reduces the risk of fraud or stolen financial data.
Credit and Debit Card Payments
69% of point-of-sale purchases in 2023 involved credit or debit cards. Accepting cards makes payment much easier for your customers. You can process online card payments, but you should also have a point-of-sale terminal. This device allows you to accept cards on the job site.
Benefits: Immediate processing means you avoid late payment problems. Also, accepting credit cards allows customers to pay even if they don’t have cash in their bank.
Contactless Payments
Your payment processing terminal should have a contactless payment option. Contactless payments use chips with near-field communication (NFC) capabilities. The chips send the data up to several inches from a card or phone to the payment terminal.
Benefits: This option appeals to customers worried about hygiene. They can make the payment without touching the card terminal. Others may prefer to use their NFC-enabled phone rather than log in to an app or browser to pay the bill.
FROM ONE OF OUR PARTNERS: Accepting Credit Card Payments as a Home Service Contractor
Top Takeaway Tips for Reducing Late Payments as a Remodeler
Digital and automated solutions can help you reduce late payments. You can research these tools and find the best one for your needs. But you can also take steps to reduce late payments right now.
Here are four things to start your fight against late payments today.
- Check the language in your contracts. Look at the contracts your customers sign. If needed, consider making changes to encourage on-time payment. For example, add fees to payments more than 30 days late.
- Consider deposits. Ask customers for partial upfront payments. This money can cover materials or subcontractor costs. It can save you from borrowing to pay upfront costs.
- Look for digital payment platform demos. Digital payment platforms may offer free trials or demos. Find these opportunities and use them to test different payment options.
- Talk to your current customers. Ask your current customers which payment methods they prefer. This will help you fine-tune your search for the right payment processing tools.
Start with these steps. Then, when you are ready, you can invest in digital payment solutions to further reduce late payment issues.