What is your Payment Policy (subtitle: never stop learning)
Some years ago, at a government consultative forum, I questioned the effectiveness of Quality Assurance in connection with providing a seemingly simple service. I expressed the view that, at times, it just adds overheads without any tangible benefit. I was immediately taken to task by a lady who later took me aside to explain that she had twenty years experience with the delivery of quality assurance and was committed to its value. She explained that if a business decides to provide a service it must decide how it wants to deliver the service, so that it can develop procedures to achieve its objective.
This objective, when documented, is a policy. In the case of providing a service regulated by legislation it is important to establish a policy, since non-compliance can result in loss of entitlement, fines or exclusion from offering the service.
Once a business know what it wants to (or must) achieve it can establish procedures to meet this policy so that it can communicate its requirements to staff, gather feedback and measure its effectiveness.
After the metaphorical pain in my my knuckles subsided, it got me thinking; not the least being "you are never too old to learn".
Payment for trade or construction work (including consultancy) is complex. It involves understanding and maintaining your entitlement to payment, followed by timely collection.
Your policy could be, “We don't want to upset our clients by talking about money, so we are happy to get paid at the discretion of our client, when they feel like it”.
This policy allows you to establish a subconscious "do nothing" procedure –
Put the contract in the bottom drawer; issue invoices. Wait for payment. We know it will be late or “short” but we hope to cover it with overpriced variations, or accept the “discount”.
It is obvious that this policy is not business-like, leads to late payment, short payment and disputes. Nonetheless this payment procedure is very common in the construction industry. It strikes me that it may be common practice because many businesses do not articulate a clear payment policy. The result is haphazard invoicing and collection, poor contract management and succumbing to pressure from clients. If your client's policy is 'never give a sucker an even break" you are in trouble.
Here is a suggested Payment Policy:
"We want to get paid what we are rightfully entitled to in a timely manner, in accordance with our contract and the law".
Ahh, feels better already.
Now, what are the procedures that flow from that policy?
Protect and maintain your entitlement to be paid, by:
making sure that you have a contract that spells out your entitlement to be paid, preferably in accordance with the security of payment legislation; Check to see that you are not accepting risks that you can not manage, for example the cost of delays and disruption caused by others.
Make sure your contract includes a reference date. (a day on / after which you can make a payment claim).
List the clauses that affect your entitlement to payment. This includes:
Notices and time bars for claiming variations and extensions of time;
Documents and information that are preconditions to payment;
Payment procedures under a contract.
Ensure you and all your site staff know when they can start work on a variation - eg., after getting notice in writing (and not before).
Make sure that someone (or everyone) is responsible to collect information about variations and delays and transmits it to the office;
Make sure that someone in the office is responsible for giving notices in time;
Make sure that someone in the organisation has a good working knowledge of the relevant State security of payment legislation and communicates important actions to responsible people.
Establish a procedure to ensure you will be paid properly and on time, by:
Telling (or negotiating with) your clients how and when you propose to submit payment claims. eg., on the first of each month.
Tell your clients that you expect them to meet their contractual obligation to pay you in accordance with your agreement and the law.
Agree on payment terms. The maximum in Queensland is 15 business days for builders and 25 business days for subcontractors. Consultants and suppliers are not protected by maximum legal terms.
Ensure that the person responsible for sending payment claims / invoices is aware of all payment conditions that you have negotiated with your client and the timing requirements of the relevant State security of payment legislation.
Submit regular payment claims on or as soon after your reference date as possible.
Make sure that your claims are in accordance with your State's security of payment legislation.
Give your clients the opportunity to send you a payment schedule (under the relevant State legislation).
Allocate people to each of the above tasks
This process allows you to accurately price the cost of payment and collection processes and to allocate enough resources to ensure that critical payment issues are not overlooked.
Even a business of one or two people will benefit by thinking about and communicating how it will achieve its key objectives. It will allow the business to be clear about what it wants to achieve and how it wants to achieve it. Even (especially) in a husband and wife business, if the one responsible for payment procedures has clear guidelines, she will:
a) feel confident about invoicing and collecting payment;
b) take more control of the process, thereby relieving him to concentrate on keeping the site happening and the site supervisor happy; and
c) even run the contract management processes to make sure the business does not lose its entitlement.
It makes a lot of sense.