Increased Administrative Costs Managing and following up on overdue payments require additional administrative efforts and resources. AEC firms may need to allocate staff to handle collections, send reminders, and initiate collection processes. These activities divert valuable time and resources from core business operations and can increase the administrative costs associated with payment collections. Opportunity Costs Delayed payments can result in missed opportunities for growth and investment. When working capital is tied up in outstanding payments, AEC firms may be unable to seize new business opportunities, invest in research and development, or expand their operations. This can hinder the company’s ability to stay competitive, innovate, and adapt to market changes. To mitigate and prevent experiencing the detrimental effects of collecting payments after 30 days, your firm can adopt several strategies: Clear Payment Terms Establishing clear payment terms from the outset is crucial. Contracts are your first and best line of defense in protecting the value of your services and collecting your fair payment. Contracts should include explicit language specifying the agreed-upon payment schedule, including the due date and consequences for late payments. There should always be consequences for late payments , and they should always be acted on. Requiring net 30 payment terms and communicating them transparently to clients can help set expectations and promote timely payments. Proactive Invoicing and Follow-up Whether invoicing and collections is the responsibility of accounting, the project manager, or automated through a software platform, the chain of responsibility and actions for escalation should be made clear. Proactive follow-up through reminders, emails, or phone calls are essential, and can help prompt clients to make timely payments and reduce the risk of delayed collections. Whenever possible, invoicing should be done virtually via timestamped emails, sent to the client’s accounts payable (or AP) group with the project contact copied. Submitting invoices only through a project contact on the client side is asking to be forgotten. Often, invoice approvals are not the primary function of the project contact on the client-side. However, paying bills on time is one of the core functions of a client’s accounting/AP team, so making them aware of the client organization’s obligations directly is best practice. Consider ACH setup, whether offered by the client or to the client, to reduce back and forth correspondence time between payments. Enforce Late Payment Penalties Including late payment penalties in the contract can incentivize clients to make payments within the agreed-upon timeframe. Penalties can be structured as a percentage of the outstanding balance or a flat fee, however, your firm must be willing to use them. Often as an industry we feel guilt or discomfort at insisting we are paid – remember that collecting payment for your services is not wrong. Your clients entered into agreements with eyes open, and not paying your firm directly hurts your team.
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