Why Clients Don’t Pay
Many contractors suffer non-payment frequently and struggle to get what’s owed to them. Non-payment is a disease affecting the construction industry.
For a long time, contractors had virtually no bargaining power with which to extract payments from head contractors or principals. Legal action cost too much money and time, and the industry used this to its advantage, leaving contractors broke or struggling with lack of cash-flow.
Simply put, non-payers could get away with it. These days, their practice has changed to that of only ‘part paying’ monthly claims and then not paying the final claim at all.
The thing about payment is this: The decision not to pay you is made right at the start. At the very first interaction, your client is already deciding whether or not you are going to get paid. Remember, a client will withhold payment from a contractor whom he fears the least.
In fact, much of the cause of non-payment lies with you, the contractor. You can control many of these causes, and reduce or eliminate them.
There are 6 key reasons why contractors do not get paid.
1. Working in isolation
2. Making a weak personal impression
3. No debtor policies in place
4. Unable to prove anything in relation to your work
5. Your client knows the contract better than you do
6. Unable to counter unjustified defects and backcharges
Let’s take a closer look.
Working in isolation
You act alone using only your own experience and common sense. Given the complexities of today’s contracts and disputes, this is rarely enough. Look at your client; doesn’t he have a group of professionals surrounding him? Project managers, contracts administrators, lawyers? This creates a huge difference in power between the lone contractor and the client’s ‘team’. The contractor has little chance against a group of professionals working in a team.
Maintain a relationship with your own solicitor, quantity surveyor, expert investigator, or other professional to help you deal with payment disputes.
Making a weak personal impression
Many studies have been done on how first impressions are formed, and they are remarkably consistent.
55% is how you look; dress and grooming
38% is your voice, language, and posture
7% is what you say
Now think about that. If you meet your client for the first time with dirty clothes, sweaty hands and no business cards, you are already creating the impression that you are not a professional, and probably a soft touch when it comes to payment.
Create the impression that you can manage payment and administrative issues. Have a pen ready when you need it, speak confidently, look the client in the eye, and make sure your business card and quotation/paperwork don’t look like they’ve been dipped in a meat pie.
No debtor policies in place
Without a systematic method of chasing debt, it’s unlikely you’ll pursue the client as soon as payment is overdue. Months may tick by before anything is done, and even then most contractors will make a few phone calls that get the standard response of “oh we don’t have that invoice…can you send us the invoice…”.
Create and religiously implement debtor policies. Chase overdue payments in an organised way. Otherwise, you’re sending the message that you can be mucked about for an extended period before you really get serious about getting paid.
Unable to prove anything in relation to your work
Clients notice when you agree to do additional work or variations without writing anything down. What about site meetings? Do you take notes? Do you get finicky about paperwork, contracts, variation approvals, changes to scope? Do you keep a site diary?
All these documents become ‘contemporaneous evidence’ and can act to prove what was agreed to, and the related terms, price, and scope. Because most contractors do not keep solid paperwork, gaps form in the history of the project. Non-payers go into these gaps every time. Verbally agreed variations may go unpaid because “they were never approved in writing, never discussed, and completely unauthorised”.
Paperwork has had a bad rap: it is seen as bureaucratic red tape. Not true. Paperwork is fantastic, and you should get very excited about doing it. Nothing stops non-payment in its tracks faster, harder, and more ruthlessly than well kept, crystal clear paperwork.
Your client knows the contract better than you do
Despite the provisions that exist in your contract, non-payers generally use the same strategy. They will keep you working even though you may be in breach of the contract in some areas. These are usually on minor administrative points which the client places no importance on throughout the project. However when it comes to payment time the client refuses to pay and will then bring up a whole series of allegations of breach of contract on matters that had never been mentioned or raised before. The contractor suddenly realises that he was working in a manner that breached the contract and this may now be a barrier to getting paid.
This happens because the contractor has not read and understood the contract. Read it. If you don’t understand some of it, get professional advice. Too many contractors just check that the price on the contract matches the quote, and then sign every page. That is a perfect way to set yourself up for non-payment.
Unable to counter unjustified defects and back-charges
Most contractors do not record the quality of the work as it progresses. This leaves the door open for clients to make allegations of defective work at the very end. By then the area may have been built out or the job completed. This makes it impossible for the contractor to have an independent inspection done while the work is in progress.
Often the contractor will offer to return to inspect and fix any defects so that payment will be made. But of course the client will get someone else to do the work for three times the price and then try to back-charge the contractor for the inflated amount.
Conduct regular ‘in progress’ inspections. Record and document all quality issues of your work in progress.