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Show Me the Money: 10 Tips for Getting Paid
Economic conditions are improving for some design firms, however many firms are still having difficulty in getting paid for services. In a recent SmartRisk Survey of over 200 design firms - 81% indicated payment difficulties. Some firms eventually obtain payment, or partial payment after additional time and effort has been used chasing the pass due funds. It is essential to have effective account receivable practices in place within your firm.
Effective billing and invoicing practices help maintain cash-flow - the life blood of every design firm.
- Shorten the billing/payment cycle to 20 - 25 days. This reduces your need to borrow, saves on interest expense, and puts a red flag on a slow paying, bad-debt clients more quickly.
- Ensure you have clear suspension and termination provisions in your contract agreement and enforce, or threaten to use them when needed. Make sure the provisions are specifically tied to nonpayment of services. Include a release from liability language for project delays for nonpayment.
- If possible, shorten the client's schedule and then work overtime. Many firms have less staff today and shorter schedules usually produces more profitable projects in less time.
- Get a retainer, even partial payment, or full payment of fees for smaller projects before starting work. This approach helps cash flow allowing you to play with house money. Credit payment to the client in the last invoice. This helps to avoid a bad debt and allows you to earn maximum interest on the upfront deposit.
- In addition to normal reimbursables, ask for reimbursement for items such computer time and meeting attendance. Also request reimbursement for liability insurance premiums, specifically when requested to carry limits above what your firm normal carries. With government clients, these payment terms can reduce overhead costs, making your contract price more attractive. With private-sector clients, it can increase profits.
- Add detained billing and payment terms. Use a simple monthly payment scheduled tied to the scope and schedule of work. This avoids time-consuming breakdowns of hours and expenses. At the end of the project, make any appropriate adjustments.
- Secure guaranteed interest on late payments. If the client does not agree, negotiate for an advance payment.
- Insert a provision that precisely measures scope changes. For example, arrange for the client to sign a record copy of the drawings at specified calendar dates, indicating that decisions made as of that date are known and accepted by the client. Any changes after that date is an additional fee. NOTE: Ensure is is understood that the signature does not indicate the completion of a project phase.
- Request clients make payments directly to consultants instead of through the prime professional. This eliminates the problem of one design firm holding funds for another. If you are a consultant contracted to a prime, your payment depends on the effectiveness of the primes account receivable program.
- Stipulate a date after which all monetary terms of the contract are subject to renegotiation. This allows for an increase in fees if the project is suspended or delayed.
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Thank you.
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Sm artRisk
SmartRisk is a leading risk and performance management consultancy for design and building professionals. Through firm specific risk assessments, training and consulting, services focus on improving overall performance, profitability and reducing insurance costs through tailored risk management solutions.
If you have any questions about our services, or would like dicusss how we could assist your efforts, please contact us.
Thank you,
Timothy J. Corbett, BSRM, MSM, LEED GA
Founder & President
626-665-8150
tcorbett@smartrisk.biz
www.smartrisk.biz.
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