George Hedley answers questions about getting paid in the construction business.
We published an article last week referencing a write-up in Independent Electrical Contractors’ Insights Magazine about getting paid faster in the construction industry. That article – How To Get Paid Faster – was authored by George Hedley, a licensed business coach and author of The Business Success Blueprint For Contractors.
We found the tips in George’s article to be very helpful, with practical no-nonsense talk about why getting paid can be hard in the construction business and what can be done about it.
That inspired us to reach out to him and ask him a few more questions about getting paid in the construction business. Here’s what George had to say.
I just read your “How To Get Paid Faster” article. It suggests that one of every contractor’s biggest challenge is “getting paid.” Why is this such a challenge in the construction industry?
Getting paid is a mystery on every project. Contractors generally don’t know up front how fast their customers will pay or what hoops they have to jump through to get paid. Most contractors don’t pay their subcontractors and suppliers until they get paid for the work first. The standard procedure is for subcontractors to bill their general contractor customer by the end of the month. And then the general contractor invoices the project owner for the work completed on the entire project that month.
Getting paid is a mystery on every project. The mystery is then what the project owner requires to approve and pay the invoices. Some wait for all the paperwork from all the contractors, subcontractors and suppliers to be accurate and correct before they even begin to process any of the invoices. Other times the general contractor delays the process and doesn’t invoice timely. Or the bank holds up the process. And finally when the general contractor gets paid, it’s a mystery when they will pay their subcontractors and suppliers.
Your first item on the checklist for getting paid faster is “always send preliminary notices.” Why are preliminary notices so important to getting paid in the construction market?
It amazes me as a general contractor how many subcontractors don’t file preliminary lien notices to protect their lien rights. Standard procedure must include this process. Without the notice, the project owner doesn’t know who is owed money for services and materials and will pay the general contractor without making sure the subcontractors and suppliers are paid out of the funds provided.
What is the biggest mistake you see construction companies make with respect to their company’s financial risk?
Contractors are desperate to get a signed contract and start work. Because of their addiction to volume, they don’t follow sound financial principles before they start work and make sure there are sufficient funds available to pay for the entire project, how the payments will be made, and when they will be paid. Subcontractors assume their general contractor is handling this due diligence for them.
Your article mentions that even though contractors go unpaid they “often do not stop work or place liens on projects…out of fear of jeopardizing relationships with customers.” Why do you think this sentiment exists?
It amazes me as a general contractor how many subcontractors don’t file preliminary lien notices to protect their lien rights. Like I said before, contractors are afraid of upsetting their customers and not getting the next job. And they don’t like asking for money or creating conflict over payment issues. Rather than demanding they follow the terms of their contract, contractors let their customers off the hook and allow them to mistreat them with slow pay. The solution to this problem is to meet with your customer at the beginning of the job, review the contract payment terms, and discuss what happens when they don’t get paid per the contract.
Do you agree or disagree with the sentiment?
As a general contractor, I can get ninety percent of my subcontractors to do anything with the promise of potentially getting paid someday. The other ten percent demand we follow the contract and won’t work unless paid on time. Guess what, I like working with the tough subcontractors as it forces our project managers to be tough with our customers too.
If you were consulting with a construction company about problems they have not getting paid, and they were only willing to make one change, what change would you recommend?
Hold a pre-job meeting with your customers and discuss the contract payment terms before you start any job and agree to do work without knowing how and when you’ll get paid. Then hold a weekly pay meeting with all of your project managers and review every job payment and receivables status and make sure they go out and get paid before they do more work. To get your copy of George’s ‘Project Management Forms For Contractors’ email GH@HardhatPresentations.com.
About George Hedley
George Hedley is a licensed business coach, popular speaker and best-selling author of “The Business Success Blueprint For Contractors” available at www.HardhatPresentations.com. He works with contractors to help them grow and make more money. E-mail: GH@HardhatPresentations.com to join his next webinar, join a peer mastermind BIZGROUP, hire George to speak, get his free newsletter, be part of a BIZCOACH program, or get a $100 Discount at www.HardhatBIZSCHOOL.com online university for contractors.