Solutions to avoid Payment Delays

TOPICS OF DISCUSSION

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The most reverberated solution was to undergo thorough background checks before agreeing to offer services. Currently, in the design industry, this happens through word of mouth. Hence, keeping up appearances in the community and indulging socially with competitors and others in the network is imperative. An even more efficient way is to come together as an industry and make providing and submitting credit reports a non-negotiable prerequisite. No credit report, no service.

Having standards and set payment terms was the next solution agreed upon the most. Collaborators with genuine intentions and a healthy cash flow will not refute reasonable requisites. To exhibit good practices, refusing retention and providing dated bank guarantees that do not require the original bank guarantee for withdrawal can set a respectable standard. A service provider put it succinctly, “We are not a finance company. We offer services in exchange for money – that’s what we have implemented, and it has been successful. We have fewer jobs, but what is less is what we would have lost.”

Reaching a consensus on payment terms between two or more parties will take work. In such cases, it is vital to maintain a firm stance and resist the urge to compromise. Leverage the involvement of project managers; if project managers cannot resolve differences, consider terminating participation.

If payment procedures with a stakeholder become stressful even after setting terms, report the problematic practices to the project managers. The affiliated management companies oversee a central system, and any flagged entities will be noted for future reference, cautioning other – participating and potential – stakeholders. To eliminate untimely and unjust payment issues, it is essential to prioritise support within the industry.

Steps can also be taken on the payee’s side to ensure that payments are not delayed. Clear communication is critical – every stakeholder in the project must understand the line of command and the payment procedure. From day one of working with a company, grasp an understanding of their payment system.

Have clear expectations of the payment time. Frequently, there is a gap in communication regarding the number of days leading to the clearance of the invoice. It is assumed that the payment process starts when an application is submitted. However, invoices need to be approved by managers, which could take anywhere from three to ten days – given that there are no corrections or added requirements in the paperwork. Once approved, the client’s payment system takes 45 days, as stipulated in the contract. It is important to note that the payment period starts once the invoice is approved, regardless of the dates indicated on the invoice, even if it is backdated. Therefore, the concerned parties must discuss such details and reach a mutual understanding. This can alleviate back-and-forth due to incomplete information.

Have the set of paperwork, not just the invoice, sent before time and then double-check the list of required documents with the recipient. Most companies have stringent billing cycles – specific weeks and days of a month to process their payroll, and if the pending invoices can be booked before the set date, your payments can get more predictable. Incomplete invoices may be delayed or lost in a pile of other pending invoices, while complete and approved invoices are more likely to be processed quicker in the first go.

After thoroughly registering the details mentioned earlier and comprehending the overall system, obtain contact information, including names, email addresses, mobile numbers, and preferred platform for contact, of the individuals through whom the invoices and approvals shall pass. Usually, the paperwork gets stuck between the first and final stages; without information on those in the middle stages, one risks blindly entering a collaboration.

Direct communication with the relevant personnel can be worthwhile in resolving issues. As voiced by one participant, “Whether you’re working for a large or smaller company, someone always manages the office and posts the payments. I often think that if they know that the invoice has landed, it’s easier. It’s that kind of human aspect of it – send them an invoice saying, ‘Your furniture arrived. Please make the payment in 30 days. They see the invoices and pay them the next day.”

Along with complete invoices, approvals are paramount in the timely processing of invoices. Before commencing a project, identify the direct point of contact. Deliberating directly with the primary decision-makers throughout the projects reduces the likelihood of filtered and fragmented information and potential rebuttals of the final output. In the unpreferable scenario where intermediaries are the point of contact, take active measures to arrange consecutive meetings with the entire team. Additionally, it is recommended to document and maintain records of each revision and change requested to present in case of discrepancies. Effective communication of deliverables heavily influences fair payment for services rendered.

Despite being vigilant and delivering satisfactory output, unforeseen payment delays might still arise. Entities should use their judgement and call to halt providing services – here, the back-to-back payment criteria can be leveraged. A collaborative approach is key, and everyone must assume a role in safeguarding themselves and those below them in the supply chain. One of the stakeholders pointed out, “Main contractors will have to start taking a bit of the risk on those things and start understanding when to stop dispersing funds and providing services.”

Design is an intangible asset, which puts design and design & build firms in a trickier spot. In such a case, a letter drafted by a lawyer can motivate the defaulter to pay – but there’s also the possibility that it turns out in a dragged-out court case that depletes resources with an inconclusive result. When it came to taking a consensus around the table of what outstanding amount makes taking the legal route worth it – the answer varied from AED 50,000 to 1,000,000.

A more unexplored solution in the UAE is to take the matter to DIFC’s Small Claims Tribunal. Disputes of amounts up until AED 500,000 will be heard online by a judge – this eliminates the lawyer’s cost, and the verdict is issued in less than six months. The ruling can be enforced nationwide, not just in DIFC. The session takes place in English, and to be eligible for this service, the contract has to stipulate that the jurisdiction will come under DIFC. The entities do not have to be located in DIFC to avail of this system.

An innovative idea that was floated to the participants was the using of escrow accounts in construction contracts. An escrow account is a third-party account that only releases funds when a specified condition has been fulfilled. If service providers have the security that the funds are already deposited, it could aid in smoother payments. As radical as the solution is, the path to achieving it could be more complex and would require a lot of persuasion and support from within the community to bring it into action.

A project manager revealed,”Clients don’t have all the money at one moment in time sitting there to pay for that one. They have a yearly cash flow spend that they’re going to spend, and we give them a cash flow forecast for the projects, and all their CapEx is aligned with how it will go.”To cut to the chase, it would require a complete change in attitude to bring escrow accounts on board. Although not an immediate solution, it could be the marker for change in payment delays.

Credit insurance, a dominant concept in European countries, can also be introduced for more transparency across companies.

The good news is that banks in the region are beginning to revisit their offerings and have become more open to digitalising payments. Apps like Tabby are in the process of getting regulated. Online platforms, like CCAvenue, which require completing KYC (Know Your Customer) steps, have bank records and only register clients with a decent credit score. They can also deboard a client if the need arises. Such automated systems also enable the collection of late fees.

In conclusion, it is challenging to point out a ‘one size fits all’ solution. Yet, the most prominent and relevant solution is to come together. Instead of being divided as service providers, it is the need of the hour to call out bad paymasters and make it a norm to adopt sound financial practices by setting examples. As bank systems and FinTech startups are catching up with relevant methods to ease transactions, it is also essential to remain aware of these schemes, apply them, and spread the word about them. There is considerable benefit in standing against unfair payment practices as a group rather than as an individual – and the quicker the industry unites, the faster the changes can be incorporated.

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