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💰 Collections Strategy

Getting paid shouldn't be this hard, but it often is. This guide covers practical steps to collect what you're owed before resorting to liens or lawsuits.

Key Principle

The best collection strategy starts before you sign the contract. Vet your customers, set clear terms, and bill promptly.

Collection escalation
1
Friendly reminder
Call on day 31. Be professional but direct. Confirm the invoice was received and approved, and ask for a specific payment date.
2
Formal demand
Send a written demand letter referencing the contract payment terms, the amount due, and applicable interest or late fees.
3
Preliminary notice and lien rights
Send the required preliminary notice if not already done. Remind the owner of your lien rights — this often accelerates payment.
4
Stop work or file lien
If still unpaid, consider stopping new work (check contract first) and file a mechanics lien before the deadline expires.
5
Legal action
Engage an attorney for demand letter, mediation, arbitration, or litigation. Weigh costs against the amount owed.

Prevention: Before the Problem​

Vet New Customers​

Before taking a job:

  1. Check references - Call other contractors they've worked with
  2. Run credit check - Especially for larger jobs
  3. Search for liens - Have they been liened before?
  4. Look up lawsuits - Court records are public
  5. Trust your gut - Red flags are usually right

Warning Signs​

  • Vague about payment terms
  • Pushing for quick start before contract
  • History of disputes with contractors
  • Requesting unusual terms
  • Already behind with current contractor
  • Won't provide deposit

Set Clear Terms​

In your contract:

  • Payment due dates (Net 30 or less)
  • Late payment penalties (1.5%/month)
  • Right to stop work for non-payment
  • Collection costs and attorney fees
  • Lien rights notice (where required)

The Collection Timeline​

Day 1-30: Normal Billing​

Invoice immediately when payment is due:

  • Send on the same day every month
  • Include all supporting documentation
  • Make payment easy (multiple options)
  • Professional format with clear due date

Day 31-45: Friendly Reminder​

First follow-up:

  • Phone call to AP contact
  • "Just checking if you received the invoice"
  • Ask if there are any issues holding payment
  • Document the conversation

Email follow-up:

Subject: Invoice #123 - Payment Reminder

Hi [Name],

I wanted to follow up on Invoice #123 for $X,XXX, which was due on [date].

Please let me know if you need anything to process payment, or if there are any questions about the invoice.

Thank you,
[Your name]

Day 46-60: Escalation​

Increase pressure:

  • Call daily until you reach someone
  • Email the project manager AND owner
  • Reference contract payment terms
  • Mention late fees are accruing

Send formal demand letter:

  • Sent via email AND certified mail
  • State amount owed and due date
  • Reference contract terms
  • Set deadline for payment (10-14 days)
  • Mention your intention to exercise lien rights

Day 61-90: Final Notice​

Before taking legal action:

  • Send final demand letter
  • Give 7-day deadline
  • Clearly state next steps (lien filing, attorney)
  • Stop any remaining work if ongoing

Consider:

  • Preliminary notice (if not already sent)
  • Lien deadlines (don't miss them!)
  • Whether mediation makes sense

Options:

  1. File mechanics lien
  2. Stop notice (public works)
  3. Bond claim (if bonded project)
  4. Small claims court (if under limit)
  5. Hire collections attorney
  6. Turn over to collections agency

Collection Techniques​

Phone Calls​

Best practices:

  • Call early in the day
  • Be professional but firm
  • Document every conversation
  • Get commitment to specific date
  • Follow up in writing

What to say:

  • "When can I expect payment?"
  • "What do you need from me to process this?"
  • "What's preventing payment?"
  • "Can you commit to a specific date?"

Demand Letters​

Include:

  • Specific amount owed
  • Invoice numbers and dates
  • Contract reference
  • Previous payment history
  • Clear deadline
  • Consequences of non-payment

Stop Work​

When to stop:

  • Payment is significantly past due
  • No response to collection attempts
  • Pattern of non-payment
  • Contract allows it

How to do it:

  • Send written notice first
  • Reference contract provision
  • State you'll resume upon payment
  • Keep crews ready to return

Payment Plans​

When to consider:

  • Customer has temporary cash flow issue
  • Relationship is worth preserving
  • Alternative is getting nothing

How to structure:

  • Get written agreement
  • Require down payment (20-30%)
  • Weekly or bi-weekly payments
  • Include late payment acceleration clause
  • Continue lien rights

Negotiating Payment​

Understanding Their Position​

Ask questions:

  • "What's causing the delay?"
  • "Is there a dispute about the work?"
  • "When do you expect to have funds?"
  • "What can you pay today?"

Common Excuses and Responses​

"We haven't been paid by the owner"

  • "I understand, but our contract is with you"
  • "Can you assign owner's payment to us?"
  • "Let's set up a payment plan"

"There's a problem with the work"

  • "What specifically is the issue?"
  • "Let's schedule a walkthrough"
  • "I'll address valid issues, but payment isn't contingent on disputed items"

"The check is in the mail"

  • "Can you give me the check number?"
  • "I'll wait a few days, then follow up"
  • "Can you send via overnight mail?"

"We need to process it through accounting"

  • "What's your normal processing time?"
  • "Is there anything I can provide to expedite?"
  • "Can you commit to a specific date?"

When to Accept Less​

Consider settling for less if:

  • Customer is likely to go bankrupt
  • Legal fees would exceed recovery
  • Dispute has some merit
  • Relationship preservation matters

Get it in writing:

  • Settlement amount
  • Payment date
  • Release of claims (mutual)
  • No admission of liability

Protecting Your Lien Rights​

Preliminary Notice​

Send immediately when you start work:

Track Deadlines​

Know your state's requirements:

  • Days to send preliminary notice
  • Days to file lien from last work
  • Days to file suit after lien

Use our Lien Deadline Calculator to track dates.

Document Everything​

Keep records of:

  • All work performed (daily reports)
  • Materials delivered
  • Change orders and extras
  • All communications about payment
  • Signed delivery tickets

When to Hire Help​

Collections Attorney​

Hire when:

  • Amount exceeds $10,000
  • Customer is unresponsive
  • Lien filing is needed
  • Legal threats are made

What to expect:

  • Contingency (25-35%) or hourly
  • More aggressive demand letters
  • Lien filing assistance
  • Lawsuit if needed

Collections Agency​

Consider when:

  • Amount is smaller
  • Customer relationship is over
  • You want to move on
  • Internal resources are limited

What to know:

  • They take 25-50% of recovery
  • May damage customer relationship
  • Works best for clear-cut debts
  • Less effective for disputed amounts

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