Getting paid after winning contracts

Getting paid after winning contracts

After calculating the work, submitting your quote and providing evidence in support of your figures you are awarded the contract. Well done! But what about getting paid after winning contracts?

Like a lot of subcontractors, they busy themselves in doing the work. This is what you do, right? It is what you like doing but you forget about the billing process. You could be working for nothing and that will have much more serious consequences for you and your business. 

Now that the pandemic restrictions are being lifted and business life returning to near normal pre-Covid 19 levels, a lot of construction businesses will struggle. That’s because the pipeline of new commercial projects has been delayed with only those projects fully-funded pre-Covid continuing throughout the lockdown periods. Building up the pipeline again will take time.

Contractors, apart from housebuilders – who, it seems, are a government priority – will chase fewer commercial projects and, subsequently, cause pressure on prices. Not only will your quotes be severely impacted to win the work, but as you do the work the subcontractor will face an almost certain attempt to reduce the amount owed.

Then, as government assistance in the form of grants dried up, contractors came under pressure from both clients and subcontractors, leading to many businesses becoming insolvent as the cash needed wasn’t generated from their construction activities. Such a situation leaves lots of contractors and subcontractors vulnerable and out of pocket, not just for any billed amount but the work in progress too.

Hopefully the 3Ds below will help you manage and reduce the risk of not getting paid.

The 3Ds to help you get paid after winning contracts

  1. Diversify
  2. Debt management
  3. Debt protection

1. DIVERSIFY

You have heard of the old adage “don’t put all your eggs in one basket” and it is true today as it was then. It is applicable to all, both business and individuals, where risk, in this case the risk of not getting paid, is higher the fewer customers you have. When you work exclusively for one customer/contractor you become reliant on their success and if they fail you fail.

2. DEBT MANAGEMENT

So, you have diversified and tendered for, and most possibly winning, more contracts. How do you ensure you have not just got more customers who are likely to fail? Debt management is the key! Don’t just look at the work and your quote, take a good look at the company you are tendering to. Perform a “credit check”, using your accountant or a reputable credit rating agency, to at least give some comfort as to the solvency of your prospect.

Once the contract is won, don’t expect payments to come in like clockwork. They won’t without some effort on your part to manage the process. The areas to get right are:

  • Get your applications/invoices in on time – the contract will tell you when these can be submitted.
  • Make sure you recover everything you can in the application/invoice – again the contract should cover what you are entitled to claim per application.    
  • Build up a relationship with the Quantity Surveyor and or/the person who pays the bills – if the QS had certified your application/invoice it is your money and you should chase hard for it. Chase it regularly by putting the call in your diary, it is very easy to become distracted and the reminder should prompt you to make the call or visit the site quickly.
  • Record spending, both labour and material, by project and match it to the revenue per contract to measure profitability and more importantly the amount at risk. Your accounting system should have the ability to do this.

But if this still fails you should consider the 3rd D…   

3. DEBT PROTECTION

“You’re never too big to fail!” And you should really take this onboard when you decide to work on a contract. Depending upon your attitude to risk, you might want to add a further layer of protection when dealing with customers. Obtaining bad debt protection insurance, taken out pre-contract, is another weapon in the battle against not being paid. 

Although there is a premium to pay for the insurance, it will give greater peace of mind that, in the event of a bad debt, you will not be substantially out of pocket. That may mean you can continue trading. In a past life, as an FD of a multi-million pound turnover business, having this in place saved our business over £500,000. And it cost as little as £1,000 when a blue-chip customer became insolvent. Having this in place can also help with debt management as the insurance provider will do their own checks and advise on the contract limit per customer, they are willing to cover.

As experienced accountants in the construction industry, we know all about accounting and bookkeeping. But we offer much more guidance that will help you in your business.

To book a discovery call with us click here.