Construction Accounting Article -
Account Collection Continues to Confound Many Contractors

Target Audience: Construction Industry Professionals, Contractors, Construction Business Owners, Massachusetts, New Hampshire, Rhode Island, and New England Construction Accounting Firm Interest

There’s only one thing worse than not having work, and that’s having work that doesn’t pay. Unfortunately, the construction industry leads all others in the late-pay category with an average payment turnaround time of 69 days, according to the International Association of Commercial Collectors.

That’s why many construction companies have gone out of business — not because of poor management, underpricing or lack of experience, but simply because they ran out of money. Your ability to collect money that’s rightfully yours can determine the success or demise of your construction company.

Assess the situation

The first step to take is to quickly assess the situation. As soon as payments slow down (or stop), contact the customer, starting with the person you’ve been dealing with and working your way up the management chain. If the organization is having cash flow difficulties, suggest a payment plan.

Hiring a collection agency, which receives a percentage of any debt collected, is also an option. But keep in mind that, although bringing in such a third party may move your bill to the top of the pile, it may also diminish or end any chances of doing business with the customer in the future.

Pick your battles

Frequently, payroll problems are more complicated than a customer’s inability to pay. They’re often caused by an unwillingness to pay because of a contract dispute. In these cases, you need to know when and how to prevent the disagreement from turning into a claim.

Too many contractors turn over disputes to their attorneys before even attempting a resolution. And the further down that path you go, the more money you’ll likely leave behind.

Instead, if unilateral discussions with the customer seem futile, try mediation. This is a less formal and less expensive process in which each side presents its case to a third party in a nonlegal setting. Because both parties approve the mediator, they generally reach an agreement more quickly than if they’re constantly “on guard.”

Of course, many times you simply can’t resolve the matter amicably and going to court is unavoidable. This is unfortunate, because you’ll lose much control of the costs involved, not to mention the decision-making process.

You’ll also probably sever the business relationships forever. Nonetheless, sometimes putting your foot down and demanding what’s owed to you is necessary.

Face the truth

The probability of collecting a delinquent account drops to 73% after three months, to 57% after six months and to 29% after a year, according to a study conducted by the Commercial Collection Agency Association. These numbers only reinforce the simple truth that, perhaps more so than other types of businesses, construction companies need to take an early and proactive approach to account collection.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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