Cash flow is of utmost importance to a remodeling contractor; without money, you can't run your business. While most customers make all their payments in full and on time, there are always a few who cause trouble. It's vital that you collect from them promptly, before they paralyze your company. Here are a few tips.
Do your research. Analyze the cause of your unpaid receivables. Can the problem be alleviated by better collection efforts, clearer contracts, better service, or pulling credit before accepting a job to ensure that the customer can pay?
Be prepared. Don't wait until you get bogged down in a "never-ending job" to begin your collection efforts. Have a form letter in your system that goes out to clients who delay payment over a servicing request, and make sure it states that payment in full is required upon completion of the service. Have a collection letter ready as well. Send it out automatically when final payment is outstanding for, say, 20 days. It should advise the customer of possible repercussions should they fail to pay the balance due. Check with legal counsel to make sure the letter complies with federal and state collection laws.
Take action. A mechanic lien against the clients' property can secure your right to get paid for work. In many cases, the very mention of such a lien can be enough to get them to pay you. However, actually filing or suing under a mechanic lien may not be terribly effective. Mechanic liens almost always expire after a certain amount of time, and depending on your location, may only get you a security interest in the property. Often, suing under the contract, so you can garnish a paycheck or lien a bank account, will give you a better chance of collecting your money.
Cover your bases. Make sure your contracts allow for you to collect interest on past due balances and obtain your attorney fees in the event you do go to court. Otherwise, winning may be a hollow — and costly — victory. —D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.johansonberenson.com), a national law firm specializing in the representation of contractors and the home improvement industry. He may be contacted at (703) 759-1055 firstname.lastname@example.org. This article is for informational purposes only and should not be construed as legal advice.