After lockdown, Building companies are working hard to get back on track. So now, more than ever, you need to make sure you have your ducks in a row when invoicing your customers. If you get it wrong, it could literally cost you thousands.
In March 2020, I attended a really important presentation for builders.
It was about how building and construction companies should be invoicing, enabling them to get paid more quickly as well as avoid any costly delays or disputes.
Geoff is passionate about helping building companies ensure prompt, trouble-free payment. The key part of the talk was 9 things needed to ‘turbocharge’ your invoice by making sure it is a Payment Claim.
Sound legals + smart tech = payment success
My interest in Geoff’s advice was not only to help builders, but also to find out what part tech can play in better invoicing.
Simply put, your tech system will help you to generate the correct invoice formatting and wording. This will put you in the strongest possible position for recovering payment should there be a dispute. But more of tech’s role later.
Turning humble invoices into a no-nonsense Payment Claims
Payment Claims are a result of the 2002 Construction Contracts Act (CCA), which was introduced after Hartner Construction collapsed. It’s a way of invoicing which helps to prevent cash flow blockages.
Turning your invoice into a Payment Claim strengthens your position because it means your customer has to provide a payment schedule. In other words, they have to pay or respond to it by a certain deadline. If they’re not prepared to pay 100%, they have to clearly state why before the deadline, otherwise they have to pay 100% regardless. The invoicing template you are currently using may not provide you with this protection.
How to turn an invoice into a Payment Claim
There are 9 things your invoice needs to turn it into a Payment Claim that satisfies the Construction Contracts Act. Some are simple to implement but others require a little more attention. It’s important that your team involved in invoicing understand what’s needed and that your internal IT systems and processes support these.
The key is explaining very clearly what you are claiming and why. To satisfy the 9 criteria which create a Payment Claim, it must:
- be in writing
- say “this is a payment claim under the Construction Contracts Act 2002”
- identify the relevant construction contract
- identify the construction work you are charging for
- identify the period of time during which the work took place
- state the claimed amount
- state the due date for payment
- indicate the manner in which the claim amount was calculated
- have Form 1 attached to it (make sure it has “What is this?” at the top – this is the latest version)
Technology makes creating Payment Claims easier
Job Management systems like NextMinute, Buildxact, Fergus and Tradify make it easier to turn your invoices into Payment Claims in a number of ways:
- You create a Payment Claim template to make the process quicker and your team will consistently use this,
- You can automatically reference the contract relating to the construction work
- You can show a breakdown of what is included in your Payment Claim
- You can easily include digital timesheet information for your customer
- You can show Form 1 with your Payment Claims
- Your system will automatically include a due date by setting up your preferred payment timeframe
- You can track Payment Claim delivery, making it easier to manage issues with cashflow
Here’s an example of a Payment Claim for a Cost & Margin building project that ticks all of the 9 criteria. This sample payment claim was created in the job management app NextMinute.
Sample Cost & Margin Payment Claim – Page 1
Sample Cost & Margin Payment Claim – Page 2
Sample Cost & Margin Payment Claim – Page 3
Sample Cost & Margin Payment Claim – Page 4
If you would like a copy of this sample Payment Claim, please let us know.
Don’t weaken your position by cutting corners
Here are the most common ways Payment Claims become invalid:
- no one can make sense of your Payment Claim
- the payment isn’t actually due yet
- the claim was calculated in a different way than stated in your contract
- Form 1 was either out of date or had mistakes in it or it arrived late
- the claim doesn’t state which project it relates to
Although the Builder may be forgiven for the occasional ‘technical quibble’ in your payment claims, according to Geoff there is no consistency in the court judgments so it’s difficult to predict what you will get away with and what you will not.
Ambiguity is your enemy, so you should make every effort to strengthen your position by making sure your payment claim is not confusing and doesn’t skimp on the detail. If you need advice, I would suggest that you contact Martelli McKegg Lawyers directly.
Sending your Payment Claim – make sure the customer gets it
Occasionally, when payment is overdue, a customer will say they didn’t receive your Payment Claim.
This creates a number of problems, not least for your cash flow. So it’s important to ensure you have proof that your customer has your Payment Claim. You can do this in a number of ways:
- emailing it is fine if this is how you normally communicate (and you have emails to prove this). You can also set up ‘Read Receipt’ on some email systems. And some apps like Tradify enable you to track whether your customer has viewed the Payment Claim.
- deliver it to the customer at their usual or last known place of residence
- post it with ‘receiver signature required’ to prove delivery
- you can fax it (make sure you have a receipt of the transmission)
Another big benefit of Payment Claims
If a customer has valid reasons for not paying the full amount on the deadline, another advantage of using the Payment Claim format is your customer has to supply you with a payment schedule explaining why. This has to be given to you within a period stated in your contract, or within 20 working days of your payment claim if the contract does not cover that point.
You can find out more about payment schedules here.
What happens if they don’t pay?
You’ll be in a much better position to sue them and recover your costs. And because it’s a summary judgment process, it’s quicker than most court cases.
Setting up your invoices to be Payment Claims on your job management or accounting system – and ensuring your team understands this new business process – will help you meet the 9 criteria that Payment Claims require.
This blog contained a summary of Geoff’s key points. It’s not intended to be legal advice from FREE UP, so I would encourage you to contact Geoff directly for further information on improving how your Payment Claims are managed.