This is not a very common occurrence, so we don't have a set policy. I usually handle it on a case-by-case basis.
Our production manager picks up the payment checks in person, so he hears about it first and brings it to my attention. It's usually based on a minor issue the client has with the project, so we go in and take care of the issue. Bottom line: We want to make sure that our clients are happy, but we also don't like to be nickel-and-dimed. In our contract we have a section on our right to lien. When we go over the contract with the client, we make sure to discuss this, but we've never had to use it.
We ask the client to give the lead carpenter the payment. If they are behind on a payment, we remind them and they usually pay. If they continue to delay, I go to the job and talk to them. Not paying might be an indication that they aren't happy with something. We try to resolve the issue.
We also have a master plumbing business for service work. On those jobs, the guys do the work and give the client a bill before they leave. Sometimes we'll send invoices. The money is due within 10 days. If we don't receive a payment, our accounts receivable representative calls them. If there is still no response, we call again. Then we send a letter asking them to arrange for payment or asking if they need a payment plan. We tell them that the next step is to place a lien on the property. We have had to do that on some of our service work.
J. P. Maguire Associates
We do about 2,000 jobs a year, so the opportunity to lose money is fairly high. We do only insurance work, so we have two customers: the insurance company and the homeowner; and there might be disagreement between the two. If we know a customer has received the insurance payment, and it's heading toward 90 days, we will put a mechanics lien on the property. On jobs under $5,000 we use small claims court. On a larger job we may stop work if a progress payment is late, but we must be extremely judicious about that choice.
The Wills Co.
Our handyman department has struggled with this issue. We send out more than 1,200 invoices a year to about 500 clients, so it is a lot to manage. We've never really had to deal with it in our renovation department.
At the end of last year we hit on a winning strategy: Send out a statement with every bill, and then give clients one month to pay the invoice. After 30 days they receive a courtesy call. If we do not receive a payment, after 60 days they receive a letter stating that they are “past due” and that we would like the opportunity to discuss any problems, otherwise we expect payment.
If we do not hear back from them at that point, we wait another month or so and then we have our attorney send a registered letter stating that they have taken over the collection of this money. We have only had to send an attorney letter twice, for a total of about $18,000. Both times we received the money.
Custom Design Works
Newport News, Va.
We ask for 20% to 25% down, then collect progress payments at the beginning of each stage of the job. If, for example, we deliver the drywall and a client does not make that payment, we will not install it. We have learned that we can't overlook the fact that money is being delayed.
Some clients will never be 100% satisfied. If I have met with them a few times at the end of a job about a particular issue and they still withhold the final payment, I tell them that if it would make them happy, they can keep that money. I say “I'm sorry we could not satisfy you 100%. Keep [the final payment] because I appreciate your business.” However, I make sure that when I'm setting up the payment schedule the final payment is very low — 1% to 2%. If you make your final payment amount so little that you can walk away, in some cases you're creating a security blanket because the person will not call back.