How do I deal with customers who pay late?
Late-paying customers are one of the biggest cash flow problems for trades and construction businesses. You’ve bought materials, paid your crew, and finished the work. Now you’re waiting 60 or 90 days for money that was due a month ago. The fix is a combination of prevention and consistent follow-up.
Start before the job begins. Set clear payment terms in writing on every contract. Net 15 or Net 30 is standard for most service-based trades. For larger jobs, require a deposit upfront and use progress billing so you’re collecting throughout the project rather than waiting for one big payment at the end. A customer who owes you $2,000 at completion is a very different risk than one who owes you $25,000.
Invoice immediately when the work is done or the milestone is hit. Every day you delay sending the invoice is another day you wait to get paid. A lot of contractors finish a job Friday and don’t send the invoice until the following week. That habit alone can push your average collection time out by weeks over the course of a year. Having a reliable invoicing process means nothing sits in limbo.
Review your accounts receivable aging report weekly. This report shows who owes what and how long it’s been outstanding. Catching a past-due balance at 7 days is very different from discovering it at 60 days because nobody was paying attention. This is one of the most useful reports that comes out of keeping clean books, and most contractors never look at it.
Follow up consistently. Send a reminder the day payment is due. Call or email at 7 days past due. Send a formal past-due notice at 30 days. At 60 days, decide whether to escalate or write it off. Customers who know you’ll follow up quickly tend to pay faster than customers who know you won’t say anything for months.
Include a late payment fee in your contracts. One to one and a half percent per month is common. California allows you to charge interest on overdue invoices as long as the rate is agreed upon in writing. Even if you don’t enforce it every time, having it there gives you leverage and signals that you take payment terms seriously.
For chronic late payers, adjust the relationship. Require payment upfront or stop extending credit entirely. It’s better to lose a customer who pays 90 days late than to keep funding their cash flow problems with yours.
If someone owes a significant amount and has gone 90 plus days without payment or communication, consider a demand letter, a collections agency, or small claims court for amounts under $12,500 in California. Make sure the cost of pursuing it makes sense relative to what’s owed.
The real solution is having systems that catch problems early. When your bookkeeping for trades businesses is set up properly, you see who owes you money, how old the balance is, and what your actual cash position looks like. That visibility is what keeps late payers from quietly draining your business.
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More Questions
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