Tips on how to prevent a non payment for construction works. Many tradesmen are knocked for money or receive late payment for work they have carried out. Here are some tips on how to prevent non payment.
Most tradespeople at some point will encounter a non payment or or being knocked for money for works they have carried out. It happens regularly to many for less than £100 to tens of thousands of pounds.
Chasing money and invoicing seems like a chore, but it doesn’t have to be.
Having been in contracting since I left school and involved in the whole process from quotation to invoicing, I have first hand experience and have been involved in working directly for Mrs Jones, the consumer changing sockets to 6 figure blue chip projects.
I have suffered non payment and each time I had to learn why it had happened and how to prevent it happening again. My largest non payment was £60k for a retail shop fit out for a main contractor. Fortunately, I was able to recover the financial set back, but many wouldn’t.
I am here to share my experience, tell you about how I learnt from my mistakes to help you.
Not being paid for work carried out can have a huge impact on somebody’s mental health and cause issues with their home life effecting loved ones.
Let’s have a look at my top Tips On How To Prevent Non Payment
1. Choose Your Customer
Many seem to think that anyone asking for a quote and orders work is a client and guaranteed revenue. Yes, they can order work and yes, if they agree to works they are entering a contract. But, it doesn’t mean you will be paid.
Carrying out vetting of a client is a very easy step into increasing the chance you will be paid.
If you are working for commercial clients such as Limited (Ltd) companies, you can carry out credit checks on them. There are a number of credit services such as CreditSafe or Experian where you have the ability to look up and monitor companies financial movements. Some services and packages allow you to monitor directors.
These services notify you if a company has a bad credit rating and will highlight if the risk is high or if there are any changes within the companies that you might want to look into.
Carry out FREE searches on Companies House
You also have the ability to search Companies House where businesses have to file financial information. There is plenty of information that you can look up on Companies House to ensure they client is who they say they are and usually you can view their financial history. Unless you have knowledge on reading accounts, you may struggle to interpret some of the information so a service mentioned previously would really be beneficial.
Working directly for a landlord or a consumer such as a homeowner may prove a little trickier to credit check and vet. However, I feel the risk can fluctuate depending on where you sourced the work and whether they are willing to pay a deposit.
We shall cover deposit payments in a little while. Where the client came from is important. If you source your work from Checkatrade, you will be getting a Checkatrade client. This is someone who uses Checkatrade as a way to find tradesmen. There will be a reason someone uses Checkatrade over the other review sites. Likewise if you source work through Which Trusted Traders, you will receive a Which client. This is often someone who does their homework, and takes note of Which’s guide on employing a trades person. If you source your work through Facebook, you will get yourself a Facebook client. This is someone who searches Facebook for tradesmen.
Ask yourself, what type of person searches each of the platforms to find a person to work in their home. There is no doubt a relation between the type of client each platform attracts and their buying behaviours will reflect on the risk of payment.
You have a choice who you work for and more important who you attract. Attracting the right customer is something I work through with my clients that I business coach!
2. Detail your quotation
A quotation is a legal document. It includes what your work involves should the client agree. If your quotation (your legal document) contain a narrative that can be interpreted incorrectly, legally you are open to abuse.
If you quote in detail what work you are carrying out such as each item showing what brand you use, how you do it and the location, there is no argument from either party should a payment dispute occur.
One electrician came to me recently and told me he sends quotes via text message. It would be a few short sentences and the price. The works and how they are being carried out is totally open to interpretation and abuse.
I believe it is important to ensure both parties of the agreement are crystal clear on what both receive. Writing “Install 4 twin sockets” isn’t good enough. I understand detailing a quote takes up more time, but it will save time further down the line in the event of any problem. You can quite easily create templates as well to increase your efficiency and reduce time spent on writing quotations. I am certainly not suggesting breaking down the cost of each item, just ensuring they are written down.
3. Provide your Terms and Conditions
Not only does the quotation form part of the legal document, so does the terms and conditions. These are to protect YOU and the client. It is what both parties agree which forms part of the contract.
Many contractors terms and conditions are poor and open to abuse. Many don’t even have terms and conditions.
I get asked all the time if I recommend employing a solicitor to create terms and conditions. I would suggest it is a good practice because they are able to create a document in legal terms to protect you . However, it can cost an arm and a stick and I have found in the past that you will be expected to alter terms and conditions to suit a particular client or contract.
It is okay to have a simple set of terms and conditions. I share and provide resources to my clients who I coach.
It is vital to have the client accept the terms and conditions. It would be down to you to prove they have read and agreed to them. A verbal instruction is a contract but could be tricky to prove in court so in writing is far better. You could email a quotation along with the terms and conditions and ask the client to respond by accepting the quotation and agreeing to the terms and conditions and quoting the quote number and total amount.
You could have your terms and conditions stated on your website and a link sent to the client.
4. Consider taking deposit and/or staged payments
As mentioned earlier, it is important to vet and assess who you work for. I believe it is perfectly reasonable to expect some deposit payment at the beginning of a project because there will always be some form of expense to you.
In the early days of running my business, I never asked for deposits. I started to because I had a few non paying clients and changed my procedures. I immediately found the type of client who had a problem with paying for deposit was usually the type who would argue the final invoice.
Someone once said to me “Why would I pay you £500 when I don’t know you?”. I responded with “Why would I do £1,000 worth of work for you when I don’t know you?”.
A deposit is fair for both parties. I also assured my clients that I can be found all over the internet, my reviews were fantastic and I was very easily available on social media which helped provide trust into my clients or potential clients.
Stage payments are vital for larger projects to aid cash flow. Even on a smaller scale I think it is fair to request staged payments such as every two weeks or monthly if you can finance a month. Some contractors do not do this at all.
5. Do a bloody good job!
“Every contract to supply a service is to be treated as including a term that the trader must perform the service with reasonable care and skill”.Section 49 of the Consumers Rights Act 2015
If you provide the client with the work you promised, there is no argument for not paying. This of course doesn’t prevent a non payment client, but is certainly helps.
Section 49 of the Consumers Rights Act 2015 states “Every contract to supply a service is to be treated as including a term that the trader must perform the service with reasonable care and skill”.
If you do perform the service with reasonable care and skill, the client has a right to dispute full payment for the services you carried out! Yes!!! You read correctly. It is completely open to interpretation from a consumer when they owe you money.
Of course, you could probably argue your case but being proactive about non payments is far better than being reactive.
I would recommend getting reviews once you complete work or at least ask for feedback. If the client states they are happy, this could go in your favour if a case ever went to court.
Plus, I personally feel we should always strive to provide the best possible service we can.
6. Detail your invoice
An invoice forms part of the trail of documentation for many reasons including HMRC and accounting. I have seen no end of invoices that say just “Electrical Works” as a description. For some clients, this may seem acceptable, but imagine if you work for a client who has multiple invoices to pay each month and perhaps many electrical invoices to pay each month.
The invoice should correlate with a payment, but more importantly the client should be able to approve what they are paying for.
I recommend on your invoice besides the usual information, you provide a quotation number, worksheets to prove completion of the work and even certificate / report numbers. Always ensure you write the date the works were completed. The invoice date might differ to the completion date.
It is also vital to make it clear on your invoice how the client can pay. This should be set out in the terms and conditions they agreed originally, but don’t forget, sometimes the person paying isn’t always the contact who you liaise with for doing the work.
Listing the payment methods is vital. They won’t pay if they don’t know how!!!
7. Make it easy to pay
Us humans typically like the path of least resistance, just like electricity.
Us humans typically like the path of least resistance, just like electricity. Being paid via BACS online bank transfer is often best for you because you get the money sent straight to your bank. However, it can be a pain for a client to make a BACS payment.
I think you should consider taking card and credit card payments and even PayPal. It is so easy to punch in the card details and pay via card. There are so many different payment solutions. Some contractors use card machines so you don’t leave without being paid. This could work in some situations but if you work for landlords you might not see the landlord. There are also payment methods done online.
As soon as I offered the easy payment methods, not a single invoice has taken longer than 24 hours to be paid.
I use Stripe card payments and PayPal and even though BACS is my preferred because it costs me nothing, I don’t mind paying the small fees Stripe and PayPal charge because it provides me with quick and easy payments. Originally I accepted BACS only for my business coaching, but as soon as I offered the alternative methods, not a single invoice has taken longer than 24 hours to be paid.
I refused to accept cheque as a contractor because there is a lot of admin time involved in cashing the cheque at the bank. And my bank charged me for the pleasure! It is a very outdated method of payment.
8. Invoice quickly
Get into the habit of invoicing quickly. The quicker you invoice, the quicker you can get paid! It is a simple formula.
Often, I used to send the client the invoice BEFORE we started so they can pay a deposit and they have the information ready to pay when the work is complete.
It is important to make sure the client gets the invoice quickly so it is fresh in their minds once the job is complete to approve payment.
Many contractors who invoice at the end of the month and spend a day doing so. 30 days is a long time to wait for money so if you invoice immediately, you will improve your cash flow. This is why I think the use of invoicing software should be considered.
9. Use invoicing software
The days of manual invoicing are pointless. If you only send a couple of invoices a year, sure, sending invoices manually makes sense. However, there are so many low cost solutions that even the self-employed working for one organisation should consider invoicing software.
The benefits of invoicing software are:
- Quick invoicing
- Easy record of incoming and outgoing payments
- Many can integrate with payment methods such as card payments
- Can be used for accountancy to satisfy HMRC and companies house
- Saves time!!!!!
I use Zoho Books and although it works perfectly for me, I am in the process of trying out a few different types of software and will create a blog post soon on what I recommend for contractors.
What I love about the software and many will be similar, is that I can invoice in seconds. If someone places an order, I can add them as a contact press a couple of buttons on my mobile or laptop and POW! Invoice sent.
The client can then pay me via my payment methods and when they do, I get notified of a payment. I also have a dash board which shows outstanding payments and can press a button to send a gentle reminder that payment is overdue.
The software records my invoices and I can upload my business expenses very easily.
Saving time in business is vital. The more time you have as a business owner, the better. Invoicing is an important but a task that might not be best use of your time. If you grow and have staff working for you, paying somebody else to invoice might be the solution but it might be just as cost effective using clever software to do most of it for you.
This then allows you to spend more time managing your team, marketing, networking or creating sales.
Communication is arguably the number 1 most important thing in any relationship whether it is a business, friendship or intimate relationship.
A client should be kept informed throughout the whole process of the project you are doing for them.
Don’t forget, communication is a two way thing. You can talk to the other person and listen when they talk to you.
Lack of communication is a very easy way for a break down in trust or interest. If you want to be paid it is important to maintain the relationship.
I truly believe that if you have a good relationship with your client, they are more likely to pay because they have an emotional attachment. Whereas if you lack that human connection, there is less of an emotional tie which does play a part in their moral decisions. Of course, this isn’t the case all the time.
11. Go legal
Unfortunately, contracting can be full of conflict and legal disputes. As a business owner you have to be willing to face this at some point in your business journey.
Don’t ever be afraid to engage with a solicitor and take legal action against somebody who owes you money.
I would always advise to use legal action as the last resort because it can be very stressful and there’s still no guarantee of getting paid.
There are also alternative methods to consulting a solicitor such as a debt collection company.
In either case, it is important to maintain your documentation for the project from client enquiry, to quotation, to certification, to invoice. I am soon offering memberships on my website where you can download a folder system on your computer to record and update the all important documents required for every job you do!
If you are interested in the membership, let me know below:
JOIN THE CLUB!!!!
Fill out the form to sign up to our mailing list where you will receive an update of the membership when it is up and running!
You can watch my YouTube video on my Tips On How To Prevent Non Payment below!
I hope these tips on how to prevent non payment have been useful. Feel free to comment below to let me know your experience or if you have any questions.
Written by Dan Jackson AKA Dans the Engineer in Bali, Indonesia
Disclaimer: All content within this blog post and website is the opinion only of Dans the Engineer and should you choose to take any of the advice or information given, we accept no responsibility for any loss you may occur.