Firm Finance

By Mike Watkins

Collecting For Architectural Services

Collections are the soft white under belly of the practice of architecture. More so than retail businesses or even medical practices. (Doctors at least have insurance companies to back up their labor and services). Architects are vulnerable to delayed pay for so many reasons. Small architecture practices with light to medium workloads are the most affected by inconsistent receivables and non-paying clients. They are highly dependant on timely bill paying. What can architects do to increase their chances of getting paid on time and not have to hassle with the anxiety of calling clients, waiting for payments and wondering if they will ever be paid?

Why are Architects not getting paid?
Often clients delay paying the architect not because the architect is not worth it but because they feel they have more important bills to pay. It is often a matter of perception. Patrick Mitchell has a small practice in the southwest. He believes his success in collections comes from his maintaining a professional relationship with his clients. But it wasnít always like that. “When I started out, I tended to become friends with my clients, partly because projects took so long to complete. This ended up, developing an unnecessary level to a business relationship that allowed my clients to think that paying me would be doing me a favor. I am still a friendly person, but I know now what types of statements and gestures tend to push the business envelope,” says Mitchell. Most clients know architects by their first names. Lets face it; we rarely call our doctors by their first names, or even our old college instructors. Even worse, I have trouble calling my kids teachers by their first names (even after they insist on it). But architects do not have the luxury of that type of professional respect. The construction industry tends to be a slap-on-the-back type of business and there is no room for personal formalities. This naturally does not have to be the case with your clients however. You can control the level of respect with which you want your clients to treat you.

How does the Architect increase his chances of timely payment of services?
Two words; proposals and contracts. This is your first line of defense. Collecting payments get tougher if you don’t have it in writing and have a clients’ signature. First, prepare a proper proposal with, among other things, all of your fees, the fees of your drafters, and your clients other financial responsibilities regarding their project with your practice, such as printing copying, phone calls etc. Have them read it and sign it, before you prepare contracts. This way there are no surprises or attempted price negotiations at the time contracts are ready to be signed. Without getting into a lot of contract details, there is a provision that should always be in your contracts.

Late Fees and finance charges.
Make it absolutely clear to your client that timely payment is essential and any late payments will be costly. Even with these provisions, you may still experience delayed payments. Why is that? Consider all the expenses of construction. The client is getting bills from everyone. One job of the architect is to manage those bills and often times check a contractor’s work and let the client know itís okay to pay the contractor. Too bad the contractor can’t send the client a letter stating “‘Hey, the plans were good, we got it built, it’s okay to pay the architect now’.” The architects must be completely self reliant in the collection aspect of his business. Slow paying clients must be called and reminded of an upcoming bill three or four days before a bill is due. If the ‘friend factor’ is an issue, calling the client can be the job of an executive assistant or bookkeeper. This will also aid you in knowing if the payment will be late and you can make other arrangements for your own financial obligations. Another way to encourage timely payment is an incentive to pay early. Offer a small discount of 5% if they pay prior to 10 days of a billing due date. This gets the payment into your hands early at very little cost to you. (Send them a note thanking them for their timely payment). If you have slow paying repeat clients, insist on a retainer for future projects. A good retaining amount would be one full billing cycle for that particular project. Lawyers will not start on a case without a retainer. You should consider a retainer for all projects. If there is a possibility, through no fault of your own, that you may not be paid, consider a collection letter.