The worst thing that could happen to a builder or contractor would be when a client refuses to pay them for their work.
You’d wonder how such a thing could happen?
Was it your fault or the clients’?
Will you ever get the payment you deserve?
Believe it or not, this issue is more common than you would think. In order to prevent it from happening to you, here are some tips which will help you in getting your payment.
1. Make Sure Everyone Understands the Contract
Before you start with the building project, make sure that both parties understand everything that is in the contract. Especially the parts that are usually the cause of dispute (variations, extensions of time, progress payments, etc.)
Also, you need to have proof that your client can actually pay you. If your client is providing their own funds, they need to have evidence that they created a security account with sufficient funds. Or if they obtained funds from a lending body, they are to provide you with a proof from the lending body that the amount of funding is enough to cover the contract price.
2. Write Down Any Variations
I mentioned that the client needs to have proof that they can pay you.
You in turn, need to have proof that any variations actually happened. Write down all of your variations as they happened and make sure that it is signed by both parties. Don’t wait to claim the extra costs from the variations at the end of the job, claim it as you go as to avoid later disputes.
3. Progress Payment
Progress payments help reduces your risks and make things easier for the client. So you can talk
about what works for you both.
You need to provide your client with your proposed progress payment schedule and the specified amount. Make sure that the work to be carried out for each stage is described accurately and clearly for both parties to understand.
It is also a requirement that your progress claims are supported by receipts and other verifying documents.
If ever your client is getting their funds from a lending body or bank, provide them with your proposed progress payment schedule BEFORE the signing of contract so they can run it past their bank. Otherwise, if the bank refuses to advance pay for a progress payment, this would put your client at risk of breaching the contract.
4. Use the Power of the Contract
As long as you’re not the one in the wrong, you can use your right to terminate the contract if the client refuses to pay.
However, just because there was a slight delay in the payment does not necessarily mean that they will not pay at all.
It is possible that they just forgot about it or there was a misunderstanding.
Contact them first so you can discuss what you should do next. If they will really not pay you for your work, then you can suspend the contract that you have with them.
Suspending the contract would keep you from incurring further costs in the project. You can then send them a notice that if they will not pay within 10 days, then the contract is off.
5. Withhold Keys Until Payment
Your contract should include a process for practical completion.
This is where you and your client inspect the project before you issue the final progress claim. If everything goes well with the inspection, the client will then pay the final claim.
Once the payment is made, you can then handover the keys and any necessary documents or certificates that the owner needs. Note, the handover will only happen AFTER the final payment is made.
I know that sometimes, it is embarrassing to go chasing the client for payment. But you have to think, you are a business, not a charity.
If you just let them off every time for delayed payments, it will affect your entire business.
What will you pay your employees? You can’t just say “sorry” to them after they have worked so hard on the project.
Put these 5 steps in place and make it clear in the contract, this way you can avoid any nasty disputes, and you will get paid what you’re owed.