Steve serves Orange with a Payment Claim under the Security of Payment Act for the $23 450.00 owed on Job B. Orange sends him a Payment Schedule stating that they do not owe him anything as they already paid him $25 000 for that job. Orange provides a copy of the cheque and bank statement as proof. Steve argues that he put that money against Job A. Orange said they meant for that money to go to Job B only.
Furious, Steve serves Orange with a Payment Claim for $32 000 for Job A. Orange states in its Payment Schedule that they do not owe $32 000. They only owe $7 000 because they have already paid $25 000 for Job A.
You see what’s happening here? Because that payment of $25 000 does not have ‘a home’ it leaves it open for Orange to move it around to whichever Job suits it at the time.
I once did 5 claims across 5 jobs for a plumber against a builder who had made a part payment of $20 000 and tried to apply that payment to each of the 5 jobs. That is the builder tried to get $100 000 credit for a $20 000 payment.
This is why you need to stop the rot early and make sure every payment is nailed to the right job.
A Part payment can be argued as full and final after an ‘agreement’.
Many times I have seen a client argue in an adjudication that the only reason a lump sum part payment was made was because the parties ‘agreed’ on that figure as full and final settlement. Of course the contractor argues that this is a lie, but the only record is that the payment was made and accepted.
So what do you do with a Part Payment that has not been directed to any of your invoices? Here’s a 2 Step plan;
1. Oldest invoices first: Apply the payment starting with the oldest invoices first. Often clients tend to think that really old invoices are no longer in play. They don’t matter. Dispel that notion straight away. After doing this, some invoices will be fully settled while others will be part paid.
2. Document it to your client: Fax your client a detailed description of what you have done with their part payment.
Note the date you received the part payment, how much it was, and how it was received (Cheque, EFT etc)
Set out which invoices the payment has been applied to, and which Job. Attach copies.
Note which invoices remain only part-paid, and which are still totally unpaid. Attach copies.
Request that in future all payments fully reconcile against issued invoiced amounts only.
Fax all the above to your client and keep the fax transmission report so you have evidence that this was sent and when it was sent. OK. Now you’re covered. If you look at the problem scenarios above, you will see that this plan of action addresses each one successfully.
So now when you get a part payment, instead of sighing in relief you should take a good long hard look at how to handle it. It is cash, but is could also be a curse.