Buiding Contractor Invoicing & Debt collection [Archive]

crus

26th January 2006, 16:45

Hi guys and gals,

My brother in law is having some difficulties with cash flow in his dry lining business and I was just wondering how you guys might suggest tweeking his invoices to ensure prompt payment by the Subcontractors and Contractors above him.

The level he is at prevents advances (my basis of trust advance of a little work ahead of an advance of cash), however I suggested he put settlement terms on each invoice of say 7 days, then a hit of 10% for non payment and then a couple of points above base rate. Admin fee added on after 1 month of non payment of another % of the invoice and it then being sold to a debt collector.

I know the industry is slightly different, having worked on site as a spark for a while, but feel that he needs to get this in place to protect himself from the unsruplous out there.

Suggestions please.

D

Oh and Nic, I already have you in mind for possible collections agent ;-)

bwglaw

26th January 2006, 16:53

Any business that issues invoices should state their payment terms on their invoices, as well as in their terms and conditions of business. Seven days is legally considered to be reasonable. Your brother could charge a "X% per month or part thereof", or X% over a named bank base rate.

From experience, I would not pass the debt to a collections agent but to pursue it in the County Court and claim a further 8% statutory interest on the debt under the County Court Act. A debt collector has virtually no powers to enforce a debt unless in possession of a warrant or some form of Court order. Proceeding straight to the County Court to claim and enforce a debt against a commercial debtor may be just as effective. However, that is just from my experience at recovering debts where the Court has been more effective.

fastfences

26th January 2006, 17:00

I ensure my terms are outlined at quote stage, rather than invoice stage. That way, the client is already aware of the terms. I have only ever had one problem dealing in this manner.
Cheers, Nigel

Ian J

26th January 2006, 17:05

I suggested he put settlement terms on each invoice of say 7 days, then a hit of 10% for non payment and then a couple of points above base rate. Admin fee added on after 1 month of non payment of another % of the invoice and it then being sold to a debt collector.

I'm afraid that payment within 7 days is extremely unlikely within the building industry and my guess is that if he mentioned your proposed settlement terms to his main contractor, his telephone would soon stop ringing with offers of work pretty quickly.

If his business is fairly small he needs to get the contractor on his side by talking sweetly to him and not by quoting penalty clauses to him. If the business is large enough to warrant it then factoring may be one possible solution.

crus

26th January 2006, 17:23

Thanks for the input people,

as Ian stated I was unsure how heavy the invoice needs / wants to be. There is a thin line between being lenient with payment and being prevented from trading / growing.

Would you put payment period on their Ian, if so how many days / months?

I think he needs to get this right as the downing of tools or ripping out the work thats not been paid for doesn'y quite convey professionalism in my opinion.

D

Admiral Collections

26th January 2006, 17:27

Hi Crus

I think Ian came up with a viable solution if your brothers company is large enough to warrant factoring.

General statements regarding debt collection companies are really what I am used to, after all, I have to market my business hard to get the message across that what I offer is above average. Part of my unique approach is to try and ensure that things dont get to the legal stage in the first place. Negotiation is the key. Nigel has a valid point regarding outlining payment terms at quotation stage. Ensure your terms are stated on all documents and you have T & C's watertight.

I work with several companies in this industry, none of which have ever had to go the legal route.

Check out my testominies on my website, the proof is in the pudding as they say.

I hope your bro sorts out his issues, if not, PM me, I am more than happy to chat to him.

Nic :wink:

bwglaw

26th January 2006, 17:28

It is a question of how long can he afford to wait for payment. 7 days is reasonable in the eyes of the law but 14 days may be more realistic. Does he ask for a deposit? if so, does this actually cover the initial outlay of the project he undertakes.

Your brother should think about having a set of terms and conditions, which can be given to clients with quotations and upon accepting any orders.

crus

26th January 2006, 17:31

OK,

thanks for this, its hard as the industires just arn't the same.

I'm keen to help him rather than hinder him with advice.

Some predone terms forms in the form of a quote pad might work, but then again its hard to ween people of the back of envelopes ;-)

D

Pebble Communications

26th January 2006, 21:21

Another approach is to discount for early payment - this is done in the construction industry.

You invoice the normal amount then, also on the invoice, have a section pointing out that you offer a 5% (or whatever) discount for early payment so that if payment is received before X date, the amount due is X.

Ian J

27th January 2006, 06:42

Would you put payment period on their Ian, if so how many days / months?

Payment terms should be part of the job/contract negotiations and should always appear on the invoice.

Depending on the sort of contractors that your brother works for it is fairly usual for the main contractor to submit an application for payment once a month and when it's received they will then pay the subcontractors.

It isn't ideal but that's the way that much of the industry works. Payment terms of 30 days or monthly account would be fairly typical and if your brother is dealing with a small customer he is unlikely to be paid any quicker than that as they won't have been paid and if they are large customers he is still unlikely to be paid any quicker due to the vast amount of red tape involved.

Getting the site manager or QS on side is a must as is polite persistance when chasing up the debt but I wouldn't get too heavy handed or threaten interest charges or other penalties unless you are happy to lose them as a customer

crus

27th January 2006, 07:28

Excellent, just the advice I needed to pass on.

He expresses his thanks also.

D

gapgb

27th January 2006, 11:56

I agree with Ian J. I worked for 3 years in cosntruction supplying both main contractors and sub-contractors and you need your paperwork clear and accurate but you also need persistence. You should be able to get paid monthly but better than this is rare. You have to be firm and keep up a constant dialogue with their accounts payable people. Any slips in payment dates should flag alarms as it is not uncommon for a contractor to get themselves into difficulty and go bust. They then start up again shortly afterwards with a new name.

bwglaw

28th January 2006, 10:00

In any event, if your Brother decides to use a Debt Collection Agency please ensure they have a Consumer Credit Licence (http://www.oft.gov.uk/Business/licence/businesses.htm) because I have had client's debts wiped clean because a debt collector was unlicenced and 'harassed' my client - the debt was for £3000!. This does not do the creditor any favours by choosing an unlicenced debt collector hence the legal route being safer and the debtor will have the opportunity to make periodic payments according to his/her budget.

crus

28th January 2006, 15:06

Thanks all,

HandsOn, I am experience actual empathy with you as the boiler packed in overnight and have to wait till moday for guy to come out and fix!

Have bought a gas cannister heater but still nippy, hows things in Georgia?

D

bwglaw

28th January 2006, 17:14

Im rather fortunate. I have constant gas and heating in this freezing weather. However, the electricity goes off 2 hours a day. It has just come back on. Many people don't have gas fires and depend on electricity so have no heating!

That said, I think I am warmer than you! ;)

Recover

25th February 2006, 08:28

If your debts are against a limited company, then you shouldnt hesitate to use the threat of insolvency to get your invoices paid

Yes, the court fees are higher, yes its seen as a little aggressive, but unless and until you get a charity registration number on your invoices, its your money they have in their account !!

I am only too happy to let anyone have information on how this works, without actually paying lawyers, website is in the sig.

Ian J

25th February 2006, 11:57

gordonthegofor

25th February 2006, 16:10

A small contractor in the building industry should be working for several different companies to avoid being classed an an 'employee'. Therefore work for the best 2 pairs and look for another one. Drop the worst 1. Always make sure your work is top notch and you will always be able to go back (eventually)

Admiral Collections

25th February 2006, 16:19

If your debts are against a limited company, then you shouldnt hesitate to use the threat of insolvency to get your invoices paid

As a lapsed Member of the Institute of Credit Management I totally disagree with the above together with the rest of Recover's post. The threat of insolvency has it's place but anyone who "doesn't hesitate to threaten insolvency" won't have any customers left so it should only be used as a last resort.

This thread is about a small subcontractor in the construction industry dealing with slow paying building contractors. How much work do you think he will be offered in the future with a gung ho attitude like that.

I totally agree with the gung ho attitude. At the end of the day, my clients want to be paid. If I went in all guns blazing I would do 2 things.

1. Ruin my clients reputation

2. Ruin my reputation as a debt collector.

It's amazing how much of my work is actually negotiation. Nearly all the debtors I contact are prickly at first until I say, 'Look, we need to sort this.' It's a simple case of whether they are prepared to, or they aren't. I have actually had on 2 occasions the people I have chased for money ask me to collect their debts too because my attitude was upright and correct. Threats are ok in their place. I admit the biggest threat of mine is ' I am not going to go away and neither is this debt.' They will cheerfully pay to get me off their backs.

They get so sick and tired of me, eventually they accept defeat and everyone is happy.

Nic :wink:

bwglaw

25th February 2006, 18:27

Threat of insolvency is not always the best solution. You can only apply for winding up if the debt is over 750GBP and it will cost another 650GBP in fees and deposit for Official Reciever. In the end, you may still not get your money.

If a Debt Collector appears too aggressive and is causing harassment the debtor can argue for the debt to be written off and you both lose out.

The original post is about slow payment to manage cashflow. Legal action does not start at this point. This is exactly why some creditors need to seek advice from a lawyer and I give initial advice on here free

Jonathan

Recover

25th February 2006, 21:00

Apologies if my previous post was interpreted as over the top.

The point I was trying to make was that you have that ultimate sanction against limited companies which can prove to be an effective method of recovery. That said, there is certainly every reason to use collectors in some circumstances.

My point is this. If you want to maintain a relationship with a customer, because they are a source of ongoing trade, then use a collector, they are low cost, and very effective. If, however, you do not intend to trade with that company again, then your prime motivation should be to be paid as quickly and cheaply as possible so that yu can concentrate on your core business. This may be collectors or legal.

bwglaw

26th February 2006, 18:10

To defend the legal profession there are some law firms that are operating in a similar way as 'debt collectors' and usually adopt similar terms of business.

Without tarring you with the same brush I have come across too many Debt Collectors who use inappropriate tactics and attempt to conduct litigation which they are not lawfully entitled to under the Courts and Legal Services Act 1990 - that is they are not allowed to draft, sign and file a claim in the County Court on the behalf of a client.

Recover

26th February 2006, 18:21

Totally agree. Debt firms which attempt to act as solicitors to short circuit the system are the ones which cast a shadow over the respectable majority.

As an example, we use Law Society registered panel firms of solicitors, rather than do any legals ourselves. We charge a fee on recovery, and we indemnify against legal fees.

In my opinion, thats the only "true" no win no fee which also complies with the CLSA.

bwglaw

26th February 2006, 18:30

I wonder how that works since solicitors are not allowed to pay 'referral fees' for passing on business as stated under the SPR. I am also interested how any Debt Collector got round the 'insurance' issue which are strict for solicitors to only act for the client that is the person bringing/defending the claim.

Plastics Dave

26th February 2006, 18:55

My terms of business state. "All goods are sold at a 15% discount". Anybody not paying on time without communicating gets a nice gentle phone call, anybody taking the p--s gets the full treatment. County court for full value of goods ie: cost + the 15% + incurred costs at £100.00 perhour + 4% over base + any unmentioned invoice costs incurred in the collection. I have only had to use it once on a big company who thought I could not enforce it and they could simply not pay..The problem I had was putting the extra 15% through the accounting system after the solicitors had finished with them.
Dave

gordonthegofor

26th February 2006, 19:12

Dave could I get a look at your terms as I work on a 30% discount if payed on time

Plastics Dave

27th February 2006, 08:55

Pm'd you.
Might post in full on the other one.
Dave

Brin

19th March 2006, 06:18

Your brother would spend his time and effort better by only dealing with customers whom he knows, has dealt with for years, are financially viable, and whom he trusts.

Sure, get the paperwork right, but at the end of the day, the building industry is full of people who will take advantage if given the slightest opportunity. There are simply too many cowboys in the game and too many people vying for business at ultra thin margins, where their ability to remain in business, let alone make a profit, depends on shafting people somewhere down the line....

fastfences

19th March 2006, 14:50

Your brother would spend his time and effort better by only dealing with customers whom he knows, has dealt with for years, are financially viable, and whom he trusts.

One cannot possibly conduct a business in this manner. There are only so many people we know who fulfil tha above criterea. We'd soon run out of people we know and trust. How then, would we grow our business? There HAS to be an element of 'calculated' risk in any business.
Cheers, Nigel

graham08

22nd February 2008, 15:51

I'd absolutely agree with that, when debt collection is involved in business it has to be approached delicately - there's nothing worse than a client who has been harrassed by what appears to be your business in a sense. Some friends of mine started looking into using web based software for debt collection (debtcollectorsolution.com) saving a lot of money and time in the process as its all managed via the web. Certainly an interesting option for now or even the future perhaps :)