One of the most baffling things about the way many AEC firms do business is the laidback approach to collecting money from their clients. It seems simple from the outside looking in. You earned it. It’s yours. Go get it.

A sole proprietor we know tells us, “When I set out on my own in the early 2000s, my two daughters were 5 and 3 and my wife had left her career to stay home with them. We were in the second year living in a new home and money was often tight. 

I was immediately busy – that has never been a problem – but without much of a financial safety net, cash flow mattered a lot.” 

He continues, “One of my first realizations was that I couldn’t survive if I ran my business the way a lot of mid-sized and larger AEC firms do. I couldn’t complete a task on the second day of a month, bill that work on the last day and then wait four, eight or even twelve weeks to receive the money. To stay ahead of my expenses, I needed to get paid as soon as possible, so my terms were – and remain – ‘payment is due upon receipt’ and bills go out immediately after meeting a contractual milestone or the job is complete.” 

He concludes, “I envied companies whose finances were strong enough that they could comfortably wait two to three months to receive payment after the work was done. But I also recognized how much better off these firms would be if they just accelerated the invoicing and collection process and stopped serving as a bank for their clients. It seems so obvious and simple, so why isn’t everyone doing it.” 

This approach is significantly easier for extremely small businesses of course, and publicly funded projects often define the collections process for you. Nonetheless, there is a lesson here; an embarrassingly high percentage of AEC firms downplay the very function that keeps the doors open. 

Not surprisingly, the firms in PSMJ’s Circle of Excellence collect money substantially faster than the typical AEC firm. According to PSMJ’s 2023 A/E Financial Performance Benchmark Survey Report, the median number of accounts receivable collection days for firms in the Circle of Excellence’s is 15 days fewer than for the firms that comprise the total survey sample (49 days to 66 days). That is more than two weeks of your money generating interest and peace of mind in your bank account rather than in your client’s. No matter how you slice it, 66 days is too long. In fact, so is 49.

Here are 10 questions to ask about your collections process that will tell you if you’re doing all you can to get your money faster.

1. IS YOUR INVOICING PROCESS CAPITALIZING ON TODAY’S TECHNOLOGY, OR STILL RELYING ON YESTERDAY’S? 
You can’t change your accounting software system every time something new emerges, but you can stay aware of and implement the features and advancements that it does offer. Make sure you’re utilizing all the features that your accounting software provides to automate the invoicing process, including generating invoices immediately after milestones or project phases are completed. 

2. ARE YOU DEMANDING A RETAINER OR FIRST INSTALLMENT PAYMENT? 
Often, the problem isn’t creating the policy, but adhering to it. We see firm principles and client managers routinely violating their retainer policies out of fear and laziness, and the firm’s cash flow suffers. Don’t tolerate this. 

3. CAN YOU ACCELERATE YOUR BILLING CYCLE? 
If you’re billing monthly, could you cut that to every two weeks? Some accounting people will scoff at the very idea, saying that it’s hard enough to get bills out every month given how long it takes for invoice review and approval. But is the staff really the problem, or is the process inefficient? Are reviewers given sufficient information in an easy-to-read format? Can habitual offenders receive administrative help to ease the burden, or be held accountable to get with the program? Don’t dismiss this idea out of hand. 

4. ARE YOU CHARGING INTEREST ON OVERDUE ACCOUNTS? 
This is another policy that many firms have, but fail to enforce. It’s okay to let interest slide for a first offender in the process of negotiating a payment, but don’t make it a habit or you’re taking all the teeth out of the penalty. 

5. DO YOU MAKE IT AS EASY AS POSSIBLE FOR CLIENTS TO PAY? 
Accepting credit cards, online sources like Zelle and Venmo, ACH payments and even digital currency is not the wave of the future – it’s the now. No matter your generation, it is in your best interest to understand this and get on board with it (though you’ll feel better about it if your cybersecurity is rock solid). If you incur an extra expense, such as a credit card fee, pass that cost on to the client. They probably have a reason if they choose to use a credit card to pay your fee, so they’re most likely willing to pay a premium to do it. Similarly, offer clients the opportunity to pay you through your website portal or other online manner. 

6. DO YOU OFFER INCENTIVES FOR PROMPT PAYMENT? 
One way to help drive faster collections is to offer the client a reason to pay early. Make the discount commensurate with the benefit to you, and ensure that the accounting system is set up to accommodate the different amounts and milestones. 

7. ARE YOU USING HISTORICAL DATA TO HELP DRIVE CURRENT PRACTICES? 
Use data analytics to help you make informed decisions and improve collections strategies. For example, if data analysis identifies a slow-paying client, and you determine that they’re worth keeping, compensate for your loss by demanding higher retainers, raising billing rates or seeking some other offset on future projects. There are more tools than ever to help you take advantage of your existing data to improve your processes, and these tools grow more sophisticated by the day. 

8. DO YOU TOLERATE INTERMINABLE "PAY WHEN PAID" CONTRACTS? 
Don’t. After you complete your work, you need to be paid in a reasonable amount of time. Don’t allow a client’s poor business practices or “bad luck” to become your financial burden. 

9. DO YOU ‘VET’ NEW CLIENTS ADEQUATELY? 
Here again is a policy that many firms have, but often ignore. Check their credit, online reputation score and other available data to see if they are trustworthy. Ask others who’ve worked for them what the experience is like and what to watch for. If you find a problem, discuss it with the client and address it with an appropriate safeguard (e.g., strengthen language regarding change orders if they’re famous for out-of-scope requests they don’t want to pay for). 

10. ARE YOU GIVING CLIENTS EXCUSES NOT TO PAY PROMPTLY? 
Firms do this in many ways, from inconsistent billing practices to confusing and poorly detailed invoices. With the available technology and other resources that AEC firms can draw on to modify, simplify and clarify their billing process, there is no reason for a client to have a legitimate complaint about the way an invoice is formatted or about the information it contains. Delineate tasks clearly and ensure that they corroborate with the contract. Ensure that your format is easy to view and understand for any adult human in the client’s AP department. The easier you make it, the faster they’re likely to pay. 
Much of this advice has been around forever, yet firms still fall into the same old traps that result in slow-paying clients and subpar cash flow. Put the time and attention needed to get paid for your work as quickly and efficiently as you can.

What steps in the collections process do you find the most beneficial? Respond in the comment field below.

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