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The problem of collecting late payments from clients is an increasingly common complaint among architects. It may sound like a no-brainer, but paying on time is an important factor in maintaining a practice, especially a smaller practice where unpaid invoices can be the difference between survival and bankruptcy.
In fact, data shows that increased cash flow (or lack thereof) is one of the most common reasons why businesses fall by the wayside.
Having said that, Emily Rae, finance partner at Fletcher Priest, suggests that smaller practices can significantly improve their debtor position by changing the way they deal with clients when payments are due.
Where to start with ensuring on-time payments?
In an ideal world, clinics shouldn’t spend their time worrying about unpaid invoices and pursuing overdue payments. However, late payments still occur, sometimes requiring architects to pursue these critical, business-sustaining payments.
While larger practices have finance departments to cultivate and maintain relationships with clients, the situation is often different for smaller practices.
Rae said the first step is to agree on payment terms (normally 30 days) and agree on a regular payment schedule. For example, avoid tying payments to the completion of a phase of work, which could mean working for months without payment and the potential for unforeseen delays.
Rae continued that the hardest invoice to receive is the first one because every client’s system is slightly different and getting into the system is key. Even before issuing the first invoice, she recommends asking customers about their payment process: Does the invoice have to be sent to a specific person or department with a separate email address? Do they use a purchase order system?
She added that architects should ask clients about their payment process as soon as possible after winning a job.
Next step? Rae recommends that it’s helpful to call the accounting department a few days after issuing your first invoice to check that everything is OK and that they have all the information they need. Confirm that the invoice is being processed and when payment is expected.
This is even more important if the architect works for a larger client or contractor, as they may have to fill out vendor forms or other documents that they are unaware of and will require before payment is made.
If it’s a smaller client, the architect may want to do a similar routine directly with the client.
All of these should be sorted out long before payment is due. Rae said what architects don’t want to happen is to find out that information was omitted only after payment is overdue.
Learn more about the RIBA work program participation overlay and where to download it
What happens if a deadline is missed?
Rae recommends calling finance/customers a week before each payment is due to check that the payment is being processed. She said the finance department gets these calls all the time and they won’t be offended – it’s their job to help and process invoices.
“Payment deadlines are often missed because invoices get stuck in the system or are lost,” she continued. “There’s usually nothing dangerous about delays. People worry that they’ll upset customers by making them aware that a date appears to have been missed, or that something doesn’t appear to have been approved for payment.
But if there is a delay or it looks like there may be a delay, it is important to make the customer aware so they can take action. You should try to resolve as many issues 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.
Rae says that assuming there are no reportable disputes on a project (which requires a very different process), if invoices are queried, these can often be resolved by having a conversation and asking the customer to resolve the issue. Additionally, Ray always recommends talking to the client rather than sending an email, although follow-up emails can confirm and document what was discussed and agreed upon.
“If there’s no good reason not to pay, I find just causing trouble is fine,” she said. “Just be that person who calls every few days.” Eventually they’ll find it easier to pay. “
Learn more about how to effectively manage cash flow
What next steps can architects take?
Ray says she rarely sends a formal letter (a precursor to initiating legal action) before taking action, but if the architect isn’t getting paid and the client hasn’t approached them about it, it can be a useful first step. Often this simple letter will do the trick. If not, and they have exhausted all other possibilities, the architect may need to consider legal action.
Another “nuclear” option that might induce customers to pay is to threaten to withdraw. Standard RIBA contracts include the right to suspend services if payment is refused.
Find out more about where to download the RIBA standard contract template
What’s the secret to maintaining healthy cash flow?
Ensuring that invoices are paid on time is part of a larger maintenance plan for your business and that your cash flow is as smooth and stable as possible.
Additionally, maintaining healthy cash flow involves more than just interacting with customers about outstanding invoices.
Rae’s team conducts an ongoing, formal review of cash and debtor positions at least weekly and maintains long- and short-term cash flow forecasts. Making these forecasts for the coming months should be a simple matter for any practice and, crucially, help mark any key points that may be imminent (quarterly rent payments, insurance premiums, etc.) as well as Regular large payments such as personnel expenses.
For outstanding payments, it is recommended to participate regularly to avoid late payments.
“If all an architect is asking for is payment for non-controversial work that has been invoiced, they should never worry about damaging the relationship with the client. It’s all about having a conversation,” concludes Ray.
Thanks to Emily Rae, Financial Partner at Fletcher Priest Architects.
Written by Neil Morris. This is a professional feature edited by the RIBA practice team.Send us your feedback and ideas
Specialist features are micro-learning as part of the flexible RIBA CPD programme. Find out more about the updated RIBA CPD core curriculum and how to meet your CPD requirements as a Chartered Member of the RIBA.
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