With the current world economic situation having a high level of uncertainty and New Zealand officially in a recession, it is now more important than ever you look after your cash flow to ensure you and your clients are clear on payment expectations.
By formatting your invoices as payment claims using the Construction Contracts Act 2002, you will have peace of mind a clear payment agreement exists with your customers up front.
Is this relevant to me and my business?
Section 6 of the Construction Contracts Act 2002 lays out the meaning of construction work. It is broad and covers areas such as construction, erection, installation, carrying out, alteration, repair, restoration, renewal, maintenance, extension, demolition, removal, or dismantling of any works or building, painting or decorating of any building or structure. It also includes design or engineering work and quantity surveying in relation to the above.
How can this help me and my business?
By sending payment claims to customers you ensure they pay on time or they must provide you with a payments schedule. The schedule must be sent back to you including what they will pay, when, how they calculated the schedule and why – even if this is nothing. By using payment claim both you and your customer will understand payment terms up front and you are doing your customer a service by providing as much information up front as possible. This provides transparency to your customer on the work you will carry out and how the costs are calculated. Being up front with your customers makes gives you credibility as a professional and builds trust. If you do not agree to the payment schedule, you may initiate the dispute process under the contract or Construction Contracts Act 2002. If the customer does not pay or does nothing you could suspend work, adjudicate, or commence court action. This is all laid out in Form 1 which you must attach to the payment claim.
What do I need to do?
If you are entitled to use the Construction Contracts Act 2002 you may provide your customers with a payment claim. This must be in writing and include, at a minimum, the following information:
- State the contract name
- What the work relates to
- Period the work covers
- How much the claim is for
- When the work must be paid for
- How the payment claim is calculated
- State it is a payment claim under the Construction Contracts Act 2002
- Attach a current ‘What is This?’ form to lay out how the Construction Contracts Act works
The use of good tech
If you currently use a good trade and construction system such as NextMinute it does make it very simple to ensure all the elements are included on your payment claim and the use of templates mean you do not need to start from scratch each time. You can be confident you are correctly sending out payment claims as part of your job management and payment process. All the items required are within the system and part of the job you have already been charging your time and materials to.
This allows you to track cash flow easily as the payment claim will be in your job management and accounting system (such as Xero) awaiting payment with due dates assigned.
This is also where finding a good bookkeeper will help take this task, you may currently be doing in the evenings off you so you may be the reviewer of the payment claim. You are the final check before it is sent out rather than spending time pulling the payment claim together. I have found this gives my current clients a role where they oversee and define what is in the payment claim creating more time to look after their staff, customers and project management work.
If you have questions on the legality of payment claims it is advisable to talk to a lawyer. They will give you the best advice legally on how to deal with a payment claim under the Construction Contracts Act 2002.