The credit manager of a construction project has quite a complex job. One of the biggest challenges a credit manager faces is making sure everyone gets paid on time. However, receiving payment often takes longer in the construction industry than in other industries.
It is important to acknowledge and accept this reality. You might be waiting longer than you are used to for payment on a construction project.
According to a report from 2018, it took construction contractors an average of 83 days to get paid. This number is an increase from 2017, where the average amount of days was 74.
Reasons for delayed payments
There are some common reasons for delayed payments in the construction industry.
Construction projects depend on credit. Nearly everyone involved in a construction project provides their goods or services without requiring payment first.
This goes both ways, with each participant in a project extending credit to others and using their own credit line.
The construction project credit scheme means at any given point someone is waiting for a payment from someone up the chain. If one payment is delayed, this affects everyone else down the chain.
Additionally, some regulations forbid a party from paying someone else until they have received their own payment from a creditor. This means complying with legal requirements could result in delayed payments.
Finally, construction projects are complex by nature. There are many different parties involved, including contractors, subcontractors, vendors, suppliers and property owners. Between that and the rules, regulations and required paperwork involved, getting paid on time can be a challenge.
While this may leave you feeling that delayed payments are inevitable, there are some steps that can help you get paid on time.
Communicate the big picture
Make sure all parties are aware of who is on the payment chain and their place on it. You might know that you are expecting a payment from someone but have no idea who they are waiting on a payment from before they can pay you.
When everyone has a big picture, top-down view of the parties involved in the payment chain, it makes it easier to identify and prevent any potential delays.
Typically, those at the top of the chain, such as general contractors, have this big picture of everyone involved in the payment chain. Credit managers also usually have this information. Communicating it to everyone involved and focusing on visibility and transparency can go a long way.
Use lien waivers as often as you can
A lien waiver is a document exchanged at the time of payment. The party receiving payment signs a lien waiver from the party making the payment.
A lien waiver is essentially a receipt of payment. It is evidence that the party received payment and has no future lien rights.
Using lien waivers is a good idea no matter where you are on the payment chain. A conditional lien waiver is even better. This allows the person receiving payment to only waive rights to the extent payment is made.
Getting paid in construction is not always easy or fast. When you believe a delay has gone on too long or the delays are derailing the entire construction project it may be time to consider further action.
