24/04/2018
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THE BUSINESS OF DESIGN | GETTING PAID
Best Practices for Billing and Collection
By: BUDJI+ROYAL Architecture+Design
It is not unusual for architects to have unpaid invoices sitting around months after the due date. Aging invoices are bad for the business because the likelihood of them being paid decreases the longer they age. Many architects are bad at collections for various reasons, most of which stem from the notion that it is in bad taste to remind clients to pay. They neglect the paperwork especially when the amount is small; they don't have a billing and collection system in place; or if they have one, they don't implement it consistently.
A good billing collection system ensures the steady cash flow needed to cover salaries and ongoing expenses. Our firm BUDJI+ROYAL Architecture+Design, bills the client after we've completed specific milestones of the project, namely, the contract proposal, schematic design, design development, construction documentation, and turnover stages. The total professional fee we charge is a percentage of the estimated construction cost, and the payment for each stage corresponds to a percentage of the total fee.
CONTRACT PROPOSAL
From the very first meeting with the client, we agree on the scope of work, project schedules, fees, and payment terms and conditions. After the meeting, we draft a contract proposal. Creating a comprehensive and detailed contract that clearly spells out the obligations of both parties eliminates misunderstanding and disagreements. Upon signing the contract, our finance department bills the client for a down payment, a percentage of our professional fee. We bill a separate down payment for bespoke furniture for the project, a service we provide in keeping with our philosophy of being a "TOTAL DESIGN" firm. In our contracts, the payment due date is ten days after receipt of the billing statement.
We then proceed with an in-depth interview to ascertain the requirements of the project, and prepare a "wish-list"--- a checklist of things the client wants included in the project. For a residential project, for example, the list asks for the preferred number of rooms and bathrooms, or the type of walk-in closets.
SCHEMATIC DESIGN STAGE
At this stage, we study the client's requirements and draw on the firm's philosophy to formulate ideas. The design, technical and interiors departments conceptualize solutions to the requirements. The team produces the schematic design studies for the project, consisting of initial CAD drawings, 3D models, bubble diagrams and space programs. An estimated construction cost is prepared as well.
The schematic design studies are presented to the client for approval. Refinements to the studies are made based on the feedback. Once the studies are approved and signed, our finance department sends the second billing statement to the client.
DESIGN DEVELOPMENT STAGE
The schematic design studies are fleshed out after approval. The team drafts detailed floor plans, elevations, sections and specifications such as the materials and the sanitary, electrical and mechanical systems to be used. The design development plans are presented to the client, and once approved and signed, we send the third billing statement.
CONTRACT DOCUMENTATION
The technical team drafts construction drawings, detailing the work for the architectural, structural, electrical and other engineering aspects. This stage yields a compilation of plans that make up the "bible" of the project. The general conditions for the construction of the project, specifications for the materials' type and quality, and their manner of construction.
The finished drawings are handed over to the client and project manager for bidding. The fourth billing statement is sent afterwards. Revisions to the approved drawings, whether major or minor, incur change order fees based on the man-hours needed for the new scope of work.
TURNOVER TO FIRM
The projects is turned over to the contractors and project managers for the ex*****on of the construction drawings. We do periodic site visits to monitor the general progress, address site issues, and check whether the design is being followed. Punch-listing of items that need correction is done religiously. After construction is completed, the contractor and project manager turn over the project to us. Because we are a total design firm, we also create custom furniture and accessories for the client. In addition to designing and overseeing the production of the pieces, the interiors team styles the spaces.
When our obligations are finished, we turn over the project to the client, and send the final billing statement that covers the finishing stages and other reimbursable, if any. A separate billing statement for the custom furniture and accessories is sent as well, once they are delivered to and accepted by the client.
TIPS FOR EFFECTIVE PAYMENT COLLECTIONS
EXAMINE YOUR PROCESSES
improving your collection results starts with examining the billing and accounts receivable management processes. Do you bill regularly? Do you set a standard due date for each payment? Does the format of your billing statement clearly state due and contact persons for questions?
In our contract, we stipulate a payment due date of ten days after receipt of the billing statement. We send soft and hard copies of the billing statement to the client, and secure acknowledgement of receipt through either a transmittal form or email response.
HOLD WEEKLY FINANCIAL MEETINGS
Set weekly meetings with finance staff to discuss billing and collection procedures. The objective is to hold persons accountable for following up and possible improvements to existing procedures. Our finance staff updates us on the status of client billings and other accounting-related matters in our ManCom meeting every Monday.
MAKE YOUR TERMS OF PAYMENT CLEAR FROM THE GET-GO.
In the initial meeting, explain your billing procedures clearly. Explain the terms and the billing schedule. Add a clause in the contract stating that late payment will incur additional charges.
ASSIGN SOMEONE TO FOLLOW-UP UNPAID INVOICES.
Most of the time, clients don't pay simply because they forget, so it's best to remind them promptly. We assigned our Administration Manager to handle follow-ups and maintain good professional relationships with clients. Our standard procedure is to call a client three days before the due date, then remind again a day before.
KEEP COMMUNICATION OPEN.
Update the client on the project's progress regularly. This way, they are apprised of development and made aware that a milestone has been achieved, and a billing statement will be on its way.
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