Communication skills are key to running a successful construction company, or any business for that matter. In construction, specifically, payment delays and disputes often arise due to poor communication among the stakeholders. Being a good communicator is also extremely important in collecting payments from clients.
Without proper communication skills, you may suffer through regular delays in payments, which can have a significant effect on your cash flow. You should therefore make it a priority to ensure that everyone in your company – most especially your debt collection and accounts receivable team – can communicate competently.
Common issues in construction debt collection
Some of the most common issues in construction debt collection stem from miscommunication. When stakeholders are not on the same page, or when communication lines are not established, payment collection in construction becomes even more complicated.
Unsettled payment disputes
One of the most common reasons for payment delays is payment disputes. Payment disputes often occur when parties do not agree on how much to pay or when to pay the required amount.
For example, a general contractor encounters unforeseen onsite design issues, and so they do more work to address said issues. Issues can come up if a change order has not been issued to the property owner. Further issues may also arise if the property owner disagrees that they are responsible for paying the additional costs.
Disputes can also happen between a material supplier and a contractor or subcontractor. If shipping and deliveries are not properly tracked and organized, a contractor may not receive the volume of materials that they ordered. The contractor would then insist that they do not need to pay the full amount that the material supplier is charging.
All these issues can make payment collection more difficult for accounts receivables departments. The best way to deal with these issues is to prevent them from happening by ensuring that communication lines are established among all stakeholders and that everyone remains on the same page in every stage of a project.
Late billing
Another common problem that leads to payment collection challenges is late billing. If
you do not serve your invoices on time, your clients will not know how much they are supposed to pay you.Late invoices can pose significant problems for your company’s cash flow. If invoices are served late, payments will arrive late, and you may not have enough money in your hands to shoulder your immediate needs. You need to be on top of your invoices if you want to stay on top of your cash flow.
If you are constantly struggling to keep your cash flow in check, you might put unnecessary stress on your clients. For example, you could end up cutting the payment terms short and require your clients to pay sooner than the agreed payment deadlines. Having to resort to these desperate measures is not advisable.
High-risk clients
Working with high-risk clients is also one of the reasons why debt collection can be a struggle. If your clients have been historically delinquent with payments and you still chose to work with them, you should expect to deal with some painful payment collection challenges.
There are companies that try to approve all credit sales regardless of a client’s reputation. This is not necessarily a bad thing, but it must come hand-in-hand with setting the appropriate credit limit. If a client is known for being delinquent, you should at least set a low credit limit. This way, you do not end up lending an amount that you cannot afford to lose.
You are also strongly advised to have a robust credit policy, especially when it comes to vetting your clients. You should do thorough research and assessments before you approve a client, and you should have a set of standards for setting the correct credit limit. There is no fit-for-all credit policy, as a good credit policy will depend on a company’s values and business objectives.
Tips for effective debt collection
There are many ways to prevent the debt collection issues mentioned above. There are also numerous ways on how to deal with them when they happen. All these tips and tricks largely revolve around knowing when to communicate and how to communicate effectively.
Some tips to have effective debt collection practices are as follows:
Put everything in writing
Having a solid and airtight contract can prevent most payment disputes from happening. If a contract is properly written – if there are no vague provisions and if everything is stated clearly and concisely – every dispute will be settled by just reading and going over the contract.
Even at the contract-writing stage, communication skills are important. If a contract is flimsy, expect to deal with issues down the road.
Even when a project has already kicked off, and the contract has been executed, you are still advised to put everything in writing. If the scope of work changes, make sure to write it down and pass it on to all relevant stakeholders. If you intend to file a mechanics lien, make sure to send a Notice of Intent to Lien even if you are not required by law to do so.
Putting everything in writing will keep you from having to deal with bigger problems later on. It protects you from potential liabilities, and it also ensures that everyone working on the project is on the same page.
Send invoices on time
You should always send your invoices on time, especially if you want to keep your cash flow in a healthy state. From the very beginning, you should have a fixed schedule for when you send your invoices, and you should have a way to track which invoices have been sent and received.
The client should know when to expect your invoices, and they should be familiar with the payment terms. For example, a client must know if you regularly send your invoices at the beginning of each month or if you send your invoices on the day the materials are delivered. They should also know if there are penalties associated with every late payment.
By being transparent and by sending your invoices your time, not only are you able to stay organized, but you are also able to have a smooth and open communication line with your clients.
Develop and implement an effective credit policy
Having a robust credit policy is a must. Without a credit policy, you will end up approving clients and setting credit limits based on arbitrary standards. Without fixed standards, it will be more difficult to assess the risks that come with every client.
A good credit policy should also be comprehensive. This means that your policies should not only focus on dealing with new clients and credit sales. Your credit policy should also standardize how your debt collection processes work and how you communicate to your clients to remind them of their payment obligations.
Keep in mind that the construction sector is notorious for slow payments. Even if you have a stringent process for vetting your clients, and even if you take on only the “good” clients, you should still brace yourself for the possibility of dealing with delayed payments.
If, for example, a loyal client fails to pay on time, your credit policy should have a provision for how to deal with them. Do you call them right away? Do you send a payment reminder via email first? Do you impose a late payment fine? Do you forgive first-time offenses? These questions should be answered by your internal credit policy.
However, this does not mean that you cannot be flexible at all costs. A good credit manager, especially in an industry like construction, should know how to make sound decisions, so they do not scare away loyal clients.
Effective debt collection strategies
Serve a preliminary notice.
Serving a preliminary notice and protecting your lien rights may not seem related to debt collection at all, but it actually plays a crucial role. If you let your clients know that you have duly preserved your lien rights, they are more likely to pay you on time just so you do not file a mechanics lien.
Nobody likes dealing with a mechanics lien – not you, and definitely not your clients. Serving a preliminary notice is one of the proactive steps you can take to avoid having to deal with delayed payments.
Set the right credit limits.
Setting the appropriate credit limit is not just about protecting yourself from potentially losing money due to high-risk clients. It is also about making sure that your client only borrows what they can afford to borrow. You should also have your client’s best interest in mind.
If your client does not borrow beyond their means, they are more likely to pay on time. Similar to serving a preliminary notice, this is another proactive approach to prevent yourself from being in a complicated debt collection problem.
Provide proper training to debt collection staff.
Training is very important. You should not expect your staff to know everything right from the beginning, so you should aim to provide them with the best training possible. Your staff should be familiar with your credit policies and payment collection practices, and they should also have regular seminars on how to collect payment successfully.
For instance, a good debt collection team knows how to make payment collection calls. If your staff are properly trained in sending emails but have no idea how to talk to clients during a collection call, you are less likely to improve your collection effectiveness index.
How important is communication in construction debt collection?
Communication is extremely important in every step of payment collection. Without proper communication skills, ongoing disputes could get worse, and payments may not be recovered at all.
Stage 1: Payment deadline reminders
Payment deadline reminders must contain all the relevant details, including the amount of payment required and the deadline date. It may also include reminders of the available payment methods, e.g., credit card, cheque, debit card, or cash.
As a company, you should also be flexible with your modes of communication to clients. For example, a payment reminder can be sent not only via email but also via text or an automated phone call. This way, a client will have little excuse for not paying on time.
Stage 2: Collection calls
The person conducting a collection call must know what questions to ask. They should be familiar with the details of the project in question, and they should also be ready to answer the questions posed by the clients.
Moreover, the person calling the client should be a good conversationalist. They should have the communication skills necessary to build rapport with a client, to pacify them if needed, and to get them to honor their payment responsibilities.
Stage 3: Follow-up calls
Follow-up calls are similar to the first payment collection calls. Depending on the client, the follow-up call may be more complex. The same communication skills required in making a collection call should be applied at this stage. However, the person doing the follow-up call should be ready to put their foot down and be more assertive.
Stage 4: Site/Office visits
On-site visits will be more difficult. It takes practice and experience to be able to handle a site visit for debt collection purposes. Some companies do this themselves, but others seek the help of third-party collectors. Site visits are trickier, so whoever is assigned to do this must be well-experienced.
How to improve communication skills for debt collection?
Proper training
Proper training is key if you want to improve your communication skills. Debt collection in construction is not as simple as making phone calls and sending emails or text messages. It takes practice and experience to navigate through complicated debt collection issues, and training must be provided if you want to see continuous improvement in your debt collection KPIs.
Regular evaluation
Your credit and collection policies must be regularly evaluated, and so does your payment collection team. By performing a regular evaluation, you are able to understand better what practices work and what policies do not work. If you know your strengths and weaknesses, you are in a better position to improve.
Standardized policies
Having standard policies greatly helps, especially in improving communication skills. For example, your clients may ask the same questions repeatedly, and instead of coming up with random answers every time, it is best if you have a set of standards to help you arrive with a single correct answer.
Keys to improving communication for debt collection
Organize your files
When clients ask questions or when you are unsure of how to deal with a specific scenario, it will help a great deal if you have a centralized database that you can consult for answers. If your files are organized and if it is easy to look for resources and information on specific accounts, communicating with clients and within your company will flow much smoother.
Know how to prioritize
When resources are short, you should know which clients to prioritize over others. For example, focusing on high-risk clients that have the largest accounts will be better than prioritizing high-risk clients that have relatively smaller accounts.
Be available and accessible
When clients try to reach you, make sure that you are there to speak with them. If a staff member is unavailable due to scheduled vacations, for example, make sure that there is someone who can cover for them to address your client’s questions and to continue the payment collection efforts.
Communication skills necessary for effective debt collection
Listening skills
Being a good communicator means knowing how to listen. If you are a good listener, you will catch the small details that are crucial to the story. Not only will you be able to empathize with your clients, but you will also arm yourself with the information that can help you trace the root cause of the payment issues.
Organizational skills
You need to be organized in order to be a good communicator. When you are organized, you know where to go to get the details you need right when you need them. For instance, you should know where to find the details about a client’s invoice, when it was sent out, and how long it has been since the payment was missed.
Language skills
Language skills are also imperative when communicating with clients and other project stakeholders. You should know how to say what you mean to say, and you should be able to speak to people with different backgrounds.
How to be a good communicator for debt collection
Be a good listener
Not all your clients are the same. Some miss payments because they simply lost track, and some may be having serious financial setbacks. When you are a good listener, you will know the root causes of late payment issues, which can help you calibrate your strategies for recovering payment.
Be organized
Tracking all paperwork is extremely important in construction, and it is also key to being a good communicator. When you deal with a high volume of information, you will have a much easier time if your files are organized.
Be proactive
Part of being a good communicator in construction is anticipating what could happen next and being prepared. You should be ready to conduct follow-up calls if necessary. In the same vein, you should proactively protect your lien rights in case you ever need to record a mechanics lien.
Further reading