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How should architects deal with clients if they don’t pay invoices on time?

Words:
Neal Morris

Learn more about engaging with client finance departments and how to maintain healthy cashflow

Architecture practices of any size can dramatically improve their debtor can profile by changing the way they engage with clients over payments due.
Architecture practices of any size can dramatically improve their debtor can profile by changing the way they engage with clients over payments due. Credit: iStock Photo

Problems with collecting late payments from clients is an increasingly common complaint among architects. It sounds like an obvious thing to say, but being paid on time is an important element to keeping a practice going, especially a smaller practice, where an unpaid invoice can be the difference between survival and insolvency.

In fact, figures show that increasingly cashflow – or a lack of – is one of the most common reasons for a business falling by the wayside.

With all that being said, Emily Rae, Finance Partner at Fletcher Priest, suggests small practices can dramatically improve their debtor profile by changing the way they engage with clients over payments due.

Where to start with making sure payments are made on time?

In an ideal world, practices shouldn’t be spending their time worrying about unpaid invoices and chasing overdue payments. And yet, late payments are still happening and it’s sometimes down to the architect to chase these crucial, business-sustaining payments.

While larger practices have finance departments to nurture and maintain a relationship with a client, it’s often a different story for smaller practices.

Rae says that the first step is to agree payment terms - 30 days is normal - and to agree a schedule of regular payments. Avoid tying payments to completion of work stages, for instance, which could mean working for several months without payment as well as the potential for unforeseen delays.

The hardest invoice to get paid is the first one, Rae continues, because every client has a slightly different system and getting onto that system is key. She recommends that even before the first invoice is raised, it’s worth asking the client about their payment process: do invoices have to go to a certain person or department with a separate email address? Do they use a purchase order system?

Architects should be asking the client about their payment process as soon as they decently can after winning the job, she adds.

The next step? Rae suggests that a few days after the first invoice is issued, putting in a call to the finance department, checking that everything is in order, and they have all the information they need is beneficial. Confirm that the invoice is being processed and when payment can be expected.

If architects are working for a larger client or contractor this is doubly important, as they may have to fill out supplier forms or other documentation they were not aware of and which will be required before any payments will be made.

If it’s a smaller client an architect might want to go through a similar routine directly with the client.

All this should be sorted out long before payment is due. What an architect doesn’t want to happen, Rae says, is to discover that information has been missed only after payment is overdue.

Read more about contractor insolvency and what to do if it happens

What happens if a deadline is missed?

Rae recommends calling finance/the client a week before each payment is due to check it’s being processed. She says that finance departments field these calls all the time and they will not be offended – it’s their job to help and to process invoices.

‘Payment deadlines are often missed because the invoice is stuck in the system, or has gone missing,’ she continues. ‘There isn’t usually anything sinister about a delay. People worry that they will be upsetting the client if they make them aware that a date looks like being missed, or if it appears that something has not been approved for payment.

‘But if there is a delay or it looks as though there might be a delay, do make the client aware so that they can do something about it. You should be trying to sort out as much as possible before payment is due. If you put in the work about getting paid early in the relationship, it will make all the difference.’

Assuming there is no notifiable dispute on a project, which calls for a very different process, if invoices are being queried Rae says that more often than not these problems can be solved by having a conversation and asking the client to resolve the issue. Moreover, Rae always recommends talking to clients rather than emailing, though follow-up emails can confirm what was discussed and agreed for the record.

‘If there is no good reason for a payment not being made, I find just being a nuisance works quite well,’ she says. ‘Just be that person who rings up every few days. In the end they will find it easier just to pay.’

Read more about how to manage to your cashflow effectively

Are there any next steps an architect can take?

Rae says she would rarely send a formal letter before action (the precursor to starting legal proceedings), but if an architect is not getting paid and the client is not engaging with them about it, it can be a useful first move. Often this simple letter will do the trick. If it doesn’t and they have exhausted all other possibilities, then an architect may need to consider starting legal action.

Another ‘nuclear’ option that might galvanise the client into paying is a threat to stand down. The standard RIBA contract includes the right to suspend services if payments are withheld.

Read more about where to download RIBA’s standard contract templates

What are the tips to maintain healthy cashflow?

Making sure invoices are paid on time is part of a larger maintenance plan for a business and ensuring that cashflow is as smooth and as constant as it can be.

Moreover, maintaining healthy cashflow is about much more than engagement with clients over outstanding invoices.

Rae’s team reviews the cash and debtor situation continually - and formally - at least once a week, and it maintains both long-term and short-term cashflow forecasts. It should be a straightforward matter for any practice to undertake these forecasts for the next few months ahead, which, crucially, help to flag up any crunch points that may be looming (quarterly rent payments, insurance premiums etc) as well as regular large payments such as staff costs.

As for outstanding payments, regular engagement is recommended so that late payment scenarios should not arise.

‘Architects should never be worried about damaging a relationship with the client if all they are asking is to be paid for undisputed work that has been invoiced. It’s all about having the conversation,’ Rae concludes.

Thanks to Emily Rae, Finance Partner, Fletcher Priest Architects.

Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas

As part of the flexible RIBA CPD programme, professional features count as microlearning. See further information on the updated RIBA CPD core curriculum and on fulfilling your CPD requirements as an RIBA Chartered Member.

 

 

 

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