The construction sector is facing unprecedented challenges that directly impact payment timelines. KPMG research reveals that 37% of projects missed budget or scheduled targets due to ineffective risk management.
With delayed payment terms and unpredictable project timelines on the rise, it’s more important than ever for construction companies to have effective collection strategies. Here’s how to manage payment delays effectively:
How to Segment Collections Strategies for Different Delay Types
Not all project delays are the same, so adapt your collection strategy to fit the specific type of delay you’re experiencing. This tailored approach will help you recover payments faster while maintaining good relationships with clients.
Weather-Related or Force Majeure Delays
When delays are caused by uncontrollable events like weather, make sure to separate the work you’ve completed from the work that’s delayed. Document what you finished before the event and invoice for these completed tasks, regardless of the overall project delay. You might also consider interim billing for materials that have been purchased but cannot be used yet.
Permitting and Regulatory Delays
When regulatory issues stall a project, your collection approach should clearly distinguish between governmental processes and contractual payment obligations. Document which work phases have received necessary approvals and focus your collection efforts on these approved components.
Develop a payment schedule that connects directly to inspection approvals rather than overall project completion. And present options for proceeding with alternative project components unaffected by the specific permit delay.
Financial or Budget-Related Delays
Client financial constraints require a different collection approach. Consider offering structured payment plans that align with the client’s cash flow realities while incorporating appropriate incentives for compliance and reasonable penalties for further delays.
Supply Chain and Material Delays
With material shortages becoming more common, document all efforts you’re making to resolve these supply chain issues. This shows your commitment to the project. You can also set up separate billing for labor and materials, allowing you to get paid for work done, even if material installation is delayed. This two-part billing can help maintain your cash flow.
How Construction Companies Can Get Back the Money They’re Owned: 3 Fundamental Strategies
The relationship web in construction requires a delicate balance that protects your financial interests while preserving vital industry relationships. So here’s how you can employ collection strategies while preserving relationships:
1. Create Documentation as Your First Line of Defense
As we mentioned earlier, when projects fall behind, good documentation becomes your best tool. It might feel like extra work during tough times, but keeping detailed records can help with collections.
Start by clearly documenting all change orders, ensuring they are signed by the customer. Keep daily logs of weather, workforce, and activities, and take time stamped photos to show progress despite delays. Most importantly, record any customer-directed changes or external delays. This turns tricky payment talks into fact-based discussions.
2. Escalate Communication Gradually During Delays
When payment timelines extend due to project delays, how you communicate can impact your recovery rates. Implement a strategic communication ladder that escalates appropriately:
Start with clarification rather than demands of payment
For example, ask, “Can you help us understand the updated payment schedule given the two-week delay from permitting issues?” This shows you’re aware of the situation but still intend to discuss payment.
Move to collaborative problem-solving next
“We understand the project’s challenges. Let’s discuss how we can structure payments to reflect completed portions while work continues on delayed sections.”
This approach demonstrates partnership while protecting your cash flow.
Escalate for unresponsiveness
Only after these approaches should you escalate to more direct collection language:
“We’ve delivered $175,000 in materials and labor that remain unpaid despite multiple discussions about alternative payment structures. We need to establish a definitive payment plan by Friday to avoid formal collection actions.”
This gradual approach maintains relationships while steadily increasing pressure toward resolution.
3. Use Mechanic’s Liens Strategically
The mechanic’s lien is a valuable collection tool, but its success depends on careful execution and timing.
Many construction companies make a common mistake: they hesitate to initiate the lien process, fearing it may strain customer relationships. However, sending the preliminary notices should become routine for delayed payments.
During times of project delays, it’s important to keep a close eye on lien deadlines. As you approach lien deadlines during delayed projects, think about having a straightforward conversation at the executive level that safeguards your legal interests but also helps preserve professional relationships.
When to Bring in Collection Professionals
Despite your best efforts, some delayed project invoices will require professional collection assistance. Knowing when to make this call can save significant money and stress.
Consider professional debt collectors when:
- You’re running out of time to get paid, and collection agencies that specialize in construction can help protect your rights, especially when communication has broken down and your calls and emails go unanswered.
- If the debtor is making excuses like “I’m waiting for another project to pay out” or “I just need to get through this month,” it may mean they’re facing serious money problems that need quick action.
- If you hear about payment issues with other vendors, it’s time to speed up your collection efforts. Construction is a small world, and payment issues can affect everyone.
Collection agencies specializing in the construction industry can find ways to secure payment while also preserving valuable relationships through structured approaches.
Act on Your Past-Due Payments Now
Construction companies that successfully weather project delays share one critical trait: they act decisively on collections rather than hoping payment timelines will improve naturally.
Finding it challenging to run behind overdue payments? Work with our debt recovery experts at Capital Recovery to increase your debt recovery rates.
We work on a no-collection, no-fee basis to ensure that you only pay for results.
Whether you’re dealing with small invoices or larger commercial debts, we tailor our approach to suit your specific needs.
Want to know your collection recovery potential? Call 470-297-1120 to schedule a free consultation!