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How to Make Effective Construction Collection Calls

How to Make Effective Construction Collection Calls

March 18, 2021

Late payments are, unfortunately, a regular occurrence in the construction business. Periodic payment delinquencies can affect the health of a company’s cash flow, and they could even result in bigger financial troubles down the road.

Construction businesses must therefore have an effective and efficient payment collection process. Before you send your unpaid accounts to third-party debt collectors, your company should be able to handle payment collection calls successfully.

What is a payment collection call?

A payment collection call – also known as a debt collection call – is a phone call that is made by a creditor to a client regarding an unpaid invoice that has gone past the payment deadline.

Say a material supplier has supplied $25,000 worth of lumber to a general contractor. They sent out the invoice on March 1, and the payment is due on June 1. If, after June 1, the general contractor still has not paid off the full $25,000 amount, the material supplier must then make a collection call reminding the client to pay up.

How to make a collection call?

Making the debt collection call itself is as simple as dialing the client’s number and reminding them of the missed payment deadline. However, such a conversation is not as easy as it sounds. If you want your collection call to get the client to produce payment successfully, you have to be trained and ready to take on the task.

  1. Be prepared with facts

    Preparation is key when making a payment collection call. Your company can have a standard script for initiating a collection call, but you still need to be able to answer specific questions from your client and present them with specific details.

    For example, you have to know the details regarding the invoice before you make the collection call. When was the invoice sent? What are the payment terms of the contract? Are there any unresolved disputes that led to the missed deadline? These are just the aspects that you and your company’s accounts receivable team must be familiar with before taking on a collection call.

  2. Be kind but firm

    Soft skills such as kindness and being pleasant are necessary when making a debt collection call. Having these skills means that you should still observe the basic ethical and professional standards of business. Even though you are dealing with a delinquent client, at no point must you revert to any untoward and unprofessional behavior.

    This does not mean, however, that you should keep your eyes away from the ball. You must still be firm in reminding your client of the payment that is due, and you must stay calm if the client resorts to harassment and intimidation. Allow the client to air their side, but be constructive and let them know that they still need to pay up.

  3. Be detailed when taking notes

    During collection calls, it is important to take detailed notes. Write down the relevant points that the client is saying. These may include an ongoing dispute that they wish to settle or a minor miscommunication on their end, resulting in missing the payment deadline. These things can help you gauge your client’s sincerity as well as their financial standing.

    Your notes may also include potential feedback from the clients. If, for instance, they say that the payment methods you accept are quite inconvenient for them, you may bring it up to your team and consider being flexible with your payment methods.

  4. Be ready to offer alternative payment options

    Understanding why your clients are missing their payment deadlines is part of making a payment collection. Depending on your credit and collection policies, you may want to include a set of procedures and standards when determining alternative payment options.

    Some companies offer installment payments to help out long-term clients, while others may decide to accept credit card payments instead of a regular check. These alternative payment options must be thoroughly discussed within your business before they are offered to clients.

  5. Be firm when wrapping the conversation up

    At the end of a collection, the person making the call must wrap things up by summarizing what has been discussed and the corresponding next steps. If payment disputes have been raised, these must be brought up and quickly summarized to confirm that you understood the nature of the disagreement. If an invoice has been missed, the details surrounding the invoice and how it was missed must also be brought up.

    The next steps involving both the creditor and client must also be discussed during the wrap-up. The idea is that by the end of the conversation, the necessary steps that must be completed to ensure that payment is made should be clear for both parties involved

Strategies for making construction collection calls

  • Understand your company’s collection policy

    A company must have a robust collection policy that would govern how payment collection calls are handled. When you make a payment collection call, you must be aware of the contents of the collection policy so you can readily discuss them with your clients.

  • Be ready with a scripted message

    A scripted message is how you typically begin a payment collection call, and this message must include all the relevant details. These important details include the invoice number, the amount that is due, the date the invoice was sent, and the date the invoice must have been paid.

  • Have a ready response for possible excuses

    It is common for clients to make excuses when dealing with collection calls. You must be ready to respond to the most common excuses in the book and document their promises to pay later. If, for instance, a client says that they will pay in two week’s time, ask them to send you an email stating that promise during your call.

How to collect construction payment and limit payment issues

  1. Send invoices on time

    The importance of sending invoices regularly and on time can never be stressed enough. Invoices must be served to your clients on a regular basis because this is the most convenient way for them to know how much they need to pay.

    If you consistently send your invoices late, or if all your clients have issues with receiving their invoices at all, it is time to review and potentially overhaul your invoice management system.

  2. Notify the client about upcoming payment deadlines

    Notifying your clients about an upcoming deadline is one way to remind them about their payment obligations and prevent them from missing the deadline altogether. There are many ways for you to send a payment reminder. You can send an automated email, for example, or you can also send a standard text message a few days before the payment is due.

  3. Send an email once the payment deadline has been missed

    Once a payment deadline is missed, you must send an automated email about it to your client. This step is part of doing your due diligence in reminding your client of their payment responsibilities. Sending an email is also a gentler way to let them know of the debt. Making a phone call right away or visiting their office may appear too aggressive when you are in the early stages of the collection process.

  4. Make a payment collection call

    Once all the gentle reminders have been sent out and you still have not heard from your clients, it is time to make a collection call. At this point, the person making the call must have had the training and must have studied the facts regarding the specific client. Remember to take detailed notes and wrap up the conversation to clarify any issues.

  5. Follow up on the client

    Following up on a client after the initial contact is a crucial step. If a client has made a promise to pay, for example, you must be ready to call them if they missed that deadline. If a client has not settled the debt after a significant amount of time, you must have a process for communicating the issue with other departments and for bringing in a third-party debt collector.

Tips for collecting construction payment

  1. Clarify all payment collection terms in your contracts

    If you want to get paid faster, your contract must have all the details regarding payment terms and conditions. These details must include the required upfront payment, the schedule for sending invoices, the payment deadlines, even the late payment fines. Glossing over these nuances could result in payment disputes that might result in late payments and other issues.

  2. Be flexible with your payment options

    When building your company’s credit policies and contracts, you should take into account the most convenient payment methods for your clients. Being flexible and open to more payment methods could help your clients hand in their payments faster.

  3. File a mechanics lien if necessary

    The mechanics lien is arguably the most powerful payment recovery method in the construction business. If payment delinquencies are impossible to settle via collection calls, you should consider getting the property owners involved by recording a mechanics lien against their property.

  4. Serve preliminary notices and progress payment lien waivers

    In most states, filing a mechanics lien must be preceded by serving a valid preliminary notice. You should therefore be familiar with the specific preliminary notice rules that apply in your state. Sending conditional progress payment lien waivers can also serve as a reminder to your clients that you are well aware of your lien rights and that you are ready to file a mechanics lien if you do not receive your due payment.

What is a collections policy?

A collections policy is a set of rules and standards that allow your accounts receivable team to have a methodical approach to payment collection. In order to streamline your processes when collecting payment – from sending payment reminders to making collection calls, all the way to putting an account on credit hold – a robust credit collections policy is needed.

What are the contents of a collections policy?

A collections policy must cover all relevant processes surrounding payment collection, right from the day payment is missed. Some of the questions that must be answered by your payment collections policy are shown in the table below:

Collections Policy Guide Questions

The key to a robust payment collections policy is in the details. The blueprint for your collections processes must cover all the bases. It should be able to guide anyone who handles payment collections and let them know what to do exactly if a client misses their payment deadline.

An example of a detailed late payment collection is shown in the table below:

Late Payment Collection Timeline.

How does having a collection policy benefit your company?

  • It helps you get paid quicker

    When you have a robust collections policy, you will be able to streamline and systematize your approach to payment collection. You will be able to build solid contractors, and you will know how to handle specific scenarios of client delinquencies.

  • It clarifies payment terms and conditions to your clients

    A robust payment collection policy also arms your clients with knowledge regarding what it is like to work with you. How often do you send your invoices? When do you impose late payment fees? When do you file a mechanics lien? Being able to articulate these procedures to your clients would show them that you take payment collections seriously.

  • It allows you to measure how efficient your collection processes are

    Being able to measure how efficient your payment collection processes are will allow you to improve your current practices. For example, if you have a high DSO, you can easily look through your collection policy and identify weaknesses and points for improvement.

Tips for subcontractor payment collection

  1. Create a robust contract

    Everything begins with the contract. When working with a high-risk client, you should consider asking for high upfront payment in your contract. The contract must also layout the consequences for late payment to potentially discourage clients from missing their payment deadlines

  2. Send them a preliminary notice

    Serving a preliminary notice on subcontractors is typically not required in most states. Sending a preliminary notice, however, is a good way to build communication lines with your clients. By serving a preliminary notice, you could potentially prompt a subcontractor to also serve the general contractor the same notice, so you are all able to preserve your lien rights.

  3. Submit conditional progress payment lien waivers

    It is a good idea to serve a conditional progress payment lien waiver together with your invoice. Once the invoice is paid, the conditional lien waiver takes effect, and your client becomes free of any payment liabilities for a specific payment period.

Best practices for payment collection in the construction industry

  • Have a robust contract and payment collection policy

    When your contracts are solid, and your payment collection policy is efficient, you are already way ahead of the pack. This puts you in a position in which you can potentially prevent late payments from happening and instead of constantly mitigating its impact.

  • Be prepared, pleasant, and firm when making payment collection calls

    Handling payment collection calls requires an entirely different skill set. The key is to prepare, but you must also know how to deal with irate and uncooperative clients. You must remain pleasant without losing sight of your goal, and most especially without resorting to unethical and unprofessional behavior.

  • Leverage your lien rights

    The mechanics lien is the best tool you can wield against non-payment, so it is in your best interest to leverage your lien rights. Make sure that you serve the required preliminary notices to ensure that your lien rights are preserved if you ever need to record and enforce a mechanics lien.

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