Payment dispute resolution skills are essential for small business owners. According to Forbes, more than 30% of small businesses have a problem with chargebacks. These happen when a customer stops the payment through their card provider. This percentage does not include customers who simply refuse to pay invoices.
As a home services contractor, you can take steps to protect yourself from this issue. The first part of the process is to understand why payment disputes arise. In our article, we’ll explore the problem and offer you solutions for such disputes.
Then, you’ll learn strategies for negotiating positive outcomes with clients. And we’ll end with tips for preventing payment disputes in the first place.
Understanding Payment Disputes and How They Affect Your Business
Payment disputes arise in one of two ways. First, a customer might question a charge that occurred on their invoice. Second, they could say the job is incomplete or doesn’t meet their standards. They could refuse payment until you meet their demands.
Payment dispute resolution is possible, but it usually takes time. In the short term, these disagreements can harm your cash flow. And they can lead to customer relationship problems and damage your reputation.
As a contractor, you’ll encounter several types of disputes:
Misunderstanding or lack of clearness in the contract
Problems with change orders or projects
Issues involving adjusted costs for work or materials
Misinterpretation of invoices
You may notice that these problems involve misunderstandings or lack of communication. You can be proactive in these areas. Use clarity and communication to avoid problems that lead to arguments with clients. This way, you stop the payment issues before they start.
6 Tips for Payment Dispute Resolution for Contractors
You can start planning for payment dispute resolution before you even have a disagreement. For example, you can bring up potential problems in the contract. Also, you can collect evidence to show you completed the job according to the contract.
Here is a closer look at these and other payment dispute resolution strategies:
Understand Your Contracts
First, review each contract with the client. Explain the payment terms and scope of work. Many disputes come from misunderstandings about the job.
You should also review these details. Ask someone else to look at your contracts. Make sure the terms and explanations are clear. See if there is any room for misinterpretation.
If something isn’t obvious, change it. Or add more text that explains the agreement. Usually, it’s best to err on the side of overexplaining.
Set Clear Payment Terms
Define payment schedules and deadlines. Also, include consequences for non-payment or late payments. This sets clear expectations from the start. It gives your customers a chance to ask for a different payment arrangement if needed.
Some clients may avoid talking about payment deadlines upfront. However, you can approach it positively and focus on meeting their needs. Make sure the terms are acceptable to the customer. Offer them a chance to make changes to deadlines or due dates.
Document Your Work
Keep detailed records of project changes and client communications. Make notes on completed work and take pictures if possible.
In serious disputes, the pictures can serve as evidence. You might send them to lawyers or credit card companies investigating chargebacks.
Respond to Client Concerns Immediately
Reply quickly to customers who have concerns or problems. Offer details to help avoid any misunderstandings.
For example, don’t simply tell the client to look at the contract. Copy the part of the contract that talks about their problem.
If they need to make a change, show them the correct way to do so. Supply them with a change order. And explain how the change will affect the timeframe and cost of the project.
Use Software to Manage Contracts and Projects
Software can help with agreements and record-keeping. You can get invoicing software and project management tools. These can automate documentation and billing. They can also help your clients track costs and project status without asking you.
Consider getting tools that can integrate with other software. Then, they can share data and make information more accessible. When you integrate your tools, you can easily access any information you need. You’ll be able to quickly communicate changes with your whole team. And you can get evidence to help with disputed charges.
Create Detailed Invoices
Software can also help you create detailed invoices. You can itemize charges so everything is clear. Your customers can look at the bill and see exactly where the costs come from.
Detailed invoices can limit confusion about charges. Integrating invoicing software can also limit potential mistakes by filling some fields automatically.
Even with such tools, always double-check your invoices before sending them. Errors can cause mistrust and lead to payment delays.
Negotiation and Payment Dispute Resolution Techniques for Contractors
Preparation can help you avoid most payment disputes and chargebacks. But you will likely still have customer disagreements. You need to be ready for these when they arise. Here are some strategies for negotiating with unhappy clients and solving disputes:
Use a solution-oriented approach. Focus on finding a solution rather than assigning blame. This mindset helps keep your emotions in check. It also encourages customers to try to seek a positive outcome.
Encourage clients to communicate. Make certain you understand the problem. Encourage clients to explain their issues in full. Then, confirm the problems by repeating them back to the client. After this process, you can offer solutions that address the actual problem.
Offer compromises. In some cases, a compromise could help show goodwill. If the customer is angry, it could diffuse the situation. It also shows you are focused on a solution rather than simply trying to win the argument.
If negotiations and compromise fail, you can involve outsiders in the dispute. You’ll only need to take such steps if all attempts at good-faith negotiations fail. Even then, you can pursue a solution that doesn’t involve a costly lawsuit.
There are three steps you can take if direct efforts with the client fail:
Mediation involves using a neutral person to guide negotiations. They can suggest solutions that work for both parties. Through these guided negotiations, you can create an agreement that solves the dispute.
Arbitration is a more structured option. A neutral third party hears your arguments and makes a decision about payment in the case. This option is less costly and time-consuming than a lawsuit.
A civil lawsuit is the final solution. It can be expensive and take time. But if the client isn’t willing to work toward a solution, it becomes your only remaining option.
The contract, change orders, and work evidence are important during a lawsuit.
It takes time to create the ideal strategy for payment dispute resolution. Investments like good invoicing software are important. But you can take steps to prevent future payment disputes right now. Here are four ways to get started:
Ask for deposits upfront.Deposits can help cover the initial cost of materials. It also shows the client’s commitment to the project. For long projects, you can use benchmark payments to ensure cash flow during the job.
Always define project scope. Clearly state what the work will include. Outline the process and deliverables in writing. If you have concerns, you can also mention work not included in the contract.
Create a template for change orders. Create templates for change orders. Use them to put any changes to the original contract in writing. Make sure clients always approve the change order with their signature.
Ask past clients for feedback. Find out which parts of your contract or invoice weren’t clear. Use these insights to make improvements.
Before/After Photo Tips for Contractors As a contractor, it can be hard to know where to focus your marketing efforts. Good news: one of the most important things you can do to promote your company is something you are likely already doing! Sharing past projects can help demonstrate your expertise and speaks volumes with new clients. You may already snap quick pictures of a project’s progress to send to a client, to collaborate with employees, provide details to your vendors, or to keep for you own portfolio. With a smartphone or compact digital camera, it’s easier than ever to capture a beautiful photo — and a great “Before and After” image can be a powerful marketing tool. The next time you snap a picture on the job site, keep these tips in mind to capture the perfect before/after photo. Lighting Make sure the scene is well-lit and free of shadows. For indoor shots, natural daylight is best. Try to take both “Before” and “After” shots at the same time of day so they have similar lighting. The key is to minimize all differences in the two shots except for the newly installed element. With the same light entering through the windows in both shots, it’s clear that the brighter appearance in the room on the right is due to newly painted walls, doors and trim.[/caption] Vantage Point The most effective comparison images are taken from the exact same place in the room. This makes it easier for the viewer to compare changes, especially in rooms that have been completely overhauled. It may be necessary to mark or measure where your original image was shot to get this just right. If the room has been changed structurally, try to frame the image on an unchanged element, such as a window or doorway to give the viewer a reference point. If your company prides itself on speedy work, be sure to include the time frame in which the changes were made. Although this room was completely changed, the open doorways give a frame of reference for the room, helping the viewer see the scope of the work. Work in Progress Sometimes an image of a work in progress (or half complete) can be very powerful, providing a natural before/after comparison that a client can’t ignore. This type of image works well for cleaning processes, or new roofing, tile, or flooring. A client that saw this image could be positive their money was well-spent. Element in Context If only one element in the room has changed, be sure to still take an image of the whole room, letting the viewer see the new element in context. This gives a great impression of how a small single change — like a new countertop — can make a big difference to the look of the whole room. Detail If your company specializes in detailed work, be sure to include a close-up image so viewers can see all the details of a job well done. These images do a great job of showing detail and expanse at the same time. Taking photos on the job site is a great habit to get into. Consider making it part of your marketing strategy! Feel free to share any photos of your past work below!
A professionally formatted invoice for painting jobs can reduce billing questions & improve clarity. Elevate your business. Learn how to write a painting invoice.
Managing your lawn care business’s cash flow is like straightening the kinks of a hose. Once you find the problem and fix it, resources start flowing again.
