The Payment to Invoice Ratio

In my building business managing cash-flow was a high priority. Outside of safety, it was probably my biggest focus. Some of my subbies on the other hand had a completely different view of their business priorities and would be sending me their invoices weeks, sometimes months, after jobs had finished.

One of my subbies, an electrician, was always late sending me his invoices. It would be weeks and weeks, often months, till I would receive them. What was interesting was he was always sending his invoices out between 11pm and 1am in the morning. I was never awake at 11pm sending invoices because invoicing was a priority to me and I was very aware of the ‘Customer Payment to Invoicing Ratio’. Here was someone who needed some technology like BuildManager to improve their lives!

So here’s how it works with many customers. If you take a week to get an invoice out, the customer will take about a week to pay you. If you take 2 weeks to get an invoice out, you can expect to get paid in about 2 weeks. If you take 6 weeks to an invoice out….you can see where I am going here.

By sending your invoices out super promptly you are actually doing three things:

  • You’re sending a message to your customer you EXPECT to get paid pronto.
  • You’re sending a message to the customer you NEED to get paid pronto.
  • Your terms and conditions in your proposal should have a payment period and that becomes legal with a signed contract.

(Note: If you are using BuildManager your terms and conditions will be there in black and white and we include an acceptance page for every estimate / quote you send).

So my interpretation of the sparkie’s message to me was …”take your time, I’m in no hurry to get paid, I’ve got loads of money”. My clear message to him was always, “I can’t pay you until I get paid and there’s a chance the customer will not pay if they receive a bill six months after the jobs finished”. Luckily for him he always did get paid, but you know what I’m saying here.

Fellow builders and tradies – it’s very important to create systems and procedures for getting invoices out every single week.

Remember the the following:

        1. Send invoices after 1 week = get paid in 1 week in, 3 weeks out = 3 weeks $ in, 6 weeks out = 6 weeks $ in and so on.
        2. Invoicing is a priority in your business, not a chore

Question:

What’s stopping you sending out invoices quickly and efficiently?

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