What happened at Ron’s company is the result of chronically late payments from clients, impacting cashflow to the point of putting the company on the brink of bankruptcy. This situation is easily preventable through the combined effects of an invoicing system, targets and some discipline and rigor.

Invoicing System

We can all agree that for a business to operate correctly, it needs to receive money. And for a business to not go under, money in needs to be higher than money out. This is basic common sense. Customers therefore need to pay for the products and services they receive, for which they must know how much to pay. In small service companies in construction, this is usually done by invoicing the client after the work has been completed. Invoices come in either paper or electronic forms.

Managing a business with paper invoices is doable but not scalable. Also, invoicing with paper provides little to no visibility on the status of payments, introduces the risk of losing some invoices and forgetting to follow-up, and to name only a few.

Invoicing Field Service Work

In the best-case scenario, service should be invoiced as soon as the work is completed. In fact, if possible, service jobs should be paid as soon as they are completed. This in turn eliminates subsequent invoice reviews and client follow-ups. For clients with payment accounts, service should be invoiced as soon as possible, with a very high priority. If clients agree, a direct monthly withdrawal is also recommended even for larger accounts.

Invoicing Renovation Projects

Larger jobs requiring multiple days of work which may include multiple work phases, it is highly recommended to require a deposit before starting the work. Depending on the projected budget, amounts between 10-25% are recommended as a down-payment. As work progresses, especially between phases, invoicing yet another portion of the budgeted/quoted amount is a good idea. The exact percentage to be invoiced will however depend on the progress to date versus the projected scope of work. As an example, a job with a substantial rough-in and a moderate finishing should be invoiced as such:

• 25% of the quote as a deposit
• 50% of the quote after phase 1 (rough-in) has been completed
• 25% of the quote after phase 2 (finishing) and project has been completed

This seems simple but requires discipline with clients. To instill this discipline, it is highly recommended to not proceed to the next phase until the previous required payment has been made.

Discipline and Rigor

Whether a digital or manual invoicing system, payments aren’t made unless invoices are generated. And the faster invoices are made, the faster payments get received. Not only that, but delaying invoices creates financial loss due to the fact that money loses value with time. The longer it takes to get paid, the less money is worth.

It is therefore in the business’ best interest to invoice as fast as possible. But this requires employees and owners to provide all required information on time. Whether it be timecards, material lists, or client addresses, all information should be added where required as soon as it is available. Doing things right and doing it one time of course requires rigor and discipline from everyone.

Financial Targets

Even with discipline, some clients will delay their payments. Reasons vary from long internal processing to disorganized clients. To have better visibility on when escalation actions are needed, receivable targets only possible with a digital should be put in place. Easily extracting data and generating relevant reports is invoicing system. Several financial targets can be used but must be well chosen to correctly assign focus. Some simple examples are provided below.

Reviewing Receivables

Invoice and receivable targets and actuals should be reviewed regularly. After each review, once straggling invoices have been identified, reminders should be sent to the relevant clients and should always be followed with a phone call and if needed a visit.

Takeaway

A business does not exist unless it has, at the very minimum, enough money to continue existing. Collecting payments on time is necessary and requires invoices to be created rapidly and accurately. Although a digital invoicing system will not eliminate the need for rigor and discipline, it will significantly increase the efficiency and effectiveness of invoicing and managing receivables and payments.