Getting the Final Payment
Most contractors have experienced problems getting the final payment on a
job. Sometimes the issue is quickly resolved, while other times it can take
months or even years for that last payment to come through. If you are a
homebuilder or remodeling contractor, here are two key strategies that can
help ensure that you receive full payment for your work.
Start with the Contract
To protect your interests, make sure your contract defines the specifics of
the project and details how every phase will be handled. The contract should
also outline your responsibilities when it comes to hidden defects,
exclusions, unexpected work and change orders. Similarly, it should define
the owner’s responsibilities, if any, when it comes to supplying materials
or performing work that could have an impact on the project’s scheduled
completion date.
Reengineer Your Payment Schedule
The standard payment approach of a third as deposit, a third at the start of
the job and a third on completion exposes you to potential cash flow
problems during the job and a major problem if the owner holds back the
final payment because of some dispute over the work. Cash flow problems can
also arise even if the payment schedule is divided into equal weekly or
monthly payments.
A more effective approach may be to list all the distinct phases of the job
and submit an invoice for payment when each phase is completed. For example,
a custom home project might have up to 30 phases. Contractors who take this
approach rarely experience cash flow problems and typically deal with a
small outstanding balance at the end of a project, perhaps only 3 percent. A key
element in making this approach work involves sending out invoices in a
timely manner, generally within 24 hours after each phase is completed.
With margins on many jobs growing increasingly tight, contractors have to
take steps to make sure they are paid for every aspect of their work.
Applying these two strategies could help bring you closer to achieving this
goal. Please
contact us
if you would like to discuss this topic further.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
