Many construction companies often have to cope with not being paid for projects completed in a timely manner. In fact, the construction industry is plagued by this problem each year. While 63% of construction companies receive their payments promptly, there is another 37% who don’t accept refunds on time and, in many cases, are at least 30 days late. Another factor to consider is the 92% of construction companies say that their customers don’t pay on time. With a lack of timely payments, many construction companies face obstacles such as lost money, the inability to meet financial obligations, and potential bankruptcy. To address this problem, many construction companies work with a construction industry collection agency to recover their payments promptly.
WORK DEFICIENCY CLAIMED ONCE PAYMENT IS DUE
One of the most common ways construction companies get burned on payments is by customers making claims of work deficiencies. A customer may say that the job was not completed to their expectations, or the construction company did not follow proper procedures when completing a task. When a customer makes this claim, it is often difficult for construction companies to receive payment. They will often have to get into a long and challenging dispute that they can often lose. With claims of a deficiency by customers, construction companies often have difficulty in receiving due payments consistently.
CLAIMS OF NON PAYMENT FROM the MAIN CONTRACTOR
Another way in which construction companies get burned on payments is when another contractor says that the main contractor did not pay them. With a lack of cash to the subcontractor, they are unable to pay the construction company. In many cases, subcontractors have difficulty getting payments themselves. As a result, they often have to claim an inability to pay the construction company, and therefore no money is received. With the main contractor unable to pay the subcontractor, the construction company fails to receive the payments they need for jobs completed.
PROPERTY OWNER FAILS TO PAY LENDER AND FREEZES PAYMENTS
Construction companies often get burned by a lack of payments when a property owner fails to pay lenders and has salaries frozen. In this situation, a property owner fails to make a payment, and then the financial institution denies them access to more funds. With no more funds available, the property owner cannot pay the construction company. As the construction company cannot receive payments from the property owner, they suffer substantial financial losses as a result.
CUSTOMERS DON’T PAY FULL BALANCE WHEN DUE
As a construction company, it is essential to receive payments so that they can remain in operation. Unfortunately, construction companies experience hardship when customers don’t pay the full balance when it is due. While construction companies charge their fees on a gradual basis, they often need to receive the total amount when it comes due. However, many customers are unable to pay the full balance when it is due, and as a result, construction companies are unable to meet their financial obligations. This can cause considerable problems for construction companies as they can go bankrupt and fail to pay their employees. 17% say that payroll is the biggest worry when asked how inadequate cash flow is in the business.
CONTRACTORS DON’T GET PAID ON TIME
Contractors need to receive payments in a timely manner so that they can keep up with their obligations with vendors and creditors. However, many contractors do not receive payments on time. As a result, they often run into financial difficulties. These difficulties can result in the company closing down and going out of business. There are many customers that either don’t have the funds to pay in a timely manner or refuse to pay because they are unhappy with the service. They may also not be able to pay because of weather conditions or natural disasters that hinder the progress of a given job. In any case, contractors often get burned when they are unable to receive payments at the specific time they expect to.
CONSTRUCTION COMPANIES CAN’T PAY VENDORS
When construction companies don’t get paid in a timely manner, they cannot pay their vendors. This means that they lack the funds to pay for supplies and materials that are needed to complete jobs. With the inability to get the resources to complete tasks, construction companies cannot be productive. As a result, they experience financial difficulties. Like all businesses, construction companies need to pay certain expenses to operate; when they don’t receive sufficient revenues on time, they are unable to pay the other companies that they rely on to run their companies.
CONTRACTORS FACE BANKRUPTCY
As a construction company is unable to meet financial obligations promptly consistently, they face bankruptcy. Many construction companies are very vulnerable to bankruptcies because of the high costs associated with their daily operations. A lack of sufficient revenue each month can result in eventual insolvency. When they are insolvent, they have no choice but to either restructure their debt or liquidate all of their assets. A bankruptcy will likely put them out of business as well.
AGENCIES SAVE TIME
Whenever a construction company is unable to receive payments, they will attempt to get the payments themselves. However, some look to use a collection agency to help them receive funds more easily. With collection agencies, construction companies can save themselves a lot of time. Using collection agencies allows a construction company to focus on running their business and let another party collect the funds for them. By saving time, construction companies will have less to worry about when conducting their daily operations.
COLLECTION AGENCIES CAN NEGOTIATE
Another benefit of using a collection agency is that they can negotiate for construction companies. With their ability to negotiate, they can help construction companies arrange a payment settlement that is mutually beneficial. Since collection agencies have expertise in collecting funds, they can find solutions that will enable a construction company to get funds more quickly.
CONCLUSION
There are many construction companies that get burned when it comes to receiving payments. Oftentimes, customers will avoid paying companies when work does not meet their expectations or when they don’t have sufficient funds to make a payment in full. While construction companies try to handle disputes themselves, they benefit more by using collection agencies to help them. With the assistance from a collection agency, a construction company is in a better position to stay in operation and remain profitable.