Want to get paid for your restoration work? A significant cause for concern for restoration contractors is the prompt collection of accounts receivable from insurance carriers. And due to the economy, now more than ever, cash flow is vital to the success of a contractor’s business.
As the amount of accounts receivables grows and preferred vendors are being forced to absorb lower prices, the danger of maintaining large receivable balances with third-party payers can cause serious harm to your business. Because of this, I want to share a few ideas to help you get paid and cover the three most common mistakes resulting in delay of payment.
Do Your HomeworkThe job is complete, so now you are wondering how to get paid for drying the wet structure, moving the contents and pulling up wet carpet at three in the morning. It isn’t difficult to get paid if your invoice is properly documented. If you haven’t done your homework, though, you are making the first mistake.
In Claims Magazine, Jim Lakes, a veteran claims adjuster who spent 12 years as a general contractor, states “So why are claims payouts typically higher when a contractor evaluates the loss? Some might liken the scenario to letting the proverbial fox loose in the henhouse.”
There is an expense to insurance companies maintaining an open, unpaid claim, and contractors want to get paid in a timely manner: they both want their needs met. The expenses associated with paying claims that are not readily recoverable through rate increases include costs associated with adjusting claims, e.g. court costs, fees, and expenses of independent adjusters, lawyers and unallocated claim expenses that represent salaries and other overhead expenses.
Before this becomes a problem affecting your business and you find yourself waiting to be paid, start properly documenting your charges and consider third-party validation as a way to expedite payment. Insurance adjusters review supporting documentation, and they decide whether there is sufficient information available to pay the claim. They have endless claims to process and their job is to close files. Therefore, if the invoice you submit is too high, too vague, or contains unsupported charges, it will most likely be set aside for review when time permits.
The Opening StatementLack of an opening statement is the second mistake restoration contractors make. Each estimate or invoice should include a description of the damage that is accurate, impartial and paints a clear picture of the loss. Statements should be neither minimal nor alarmist.
The Contract and Work AuthorizationThe third mistake is lack of a properly enforceable contract and work authorization. The documents must conform to laws in the state or jurisdiction where the work will be performed. Your contract must be signed by all owners of record, or their legal agent, and include a clear understandable description of work to be performed, cost factors and terms of payment. It should stipulate that unforeseeable circumstances might require amendments or supplemental estimates may be appropriate as unforeseen or incidental damage is discovered. Some companies are bypassing the insurance industry with Emergency Response Plans (ERPs) that offer service contracts and define payment schedules in anticipation of losses.
Be careful if you suspect the company’s financial position is in question; if they go bankrupt you may lose everything.
Every water, mold, or fire loss is unique. Of course there are similarities too, and industry standards such as ANSI/IICRC S500 and S520, The RIA’s recommendations for fire repair, and manufacturers’ specifications for equipment operating ranges provide excellent resources for procedures to form a sound basis to review a loss. We’ve covered the three most common mistakes, so let’s discuss the best ways to help you get paid. Lack of documentation is the No. 1 reason claims don’t get paid in full, or paid on time; therefore, providing documentation that contain accurate descriptions is number one on my list for getting paid in a timely manner. All parties will not always agree, or understand, complicated technical information included in reports, thus providing third party narrative reports often sets the ideal scenario to confirm the extent of damage or support appropriate equipment charges.
Second, while documentation is critical and laws require some records, many companies collect so much unnecessary information that they both waste their time and confuse adjusters. It’s a little bit like the Goldilocks Principle –not too much, not too little, just right. Documentation should be substantive, submitted in writing in a timely fashion and not waste your time or that of claims professionals.
Last but not least, the importance of communication cannot be overstated. Every effective project manager knows they must be proactive, answer emails, text messages, and telephone calls promptly and professionally. Project scopes vary in size and complexity making a uniform policy of when and what to communicate to the adjuster difficult.
Substantive changes, however, should be in writing. Before-and-after pictures, along with a communication log and third-party reports, help substantiate charges and allow adjusters to justify timely payments.
When all else fails, consider starting the collection process. Do what you can first by asking for payment from your customer or claims contact. Don’t wait; if you haven’t been paid in a timely manner, inquire as to any special circumstances causing a delay in payment. If payment is not forthcoming, you have three options:
- An attorney can send a send a letter reminding them of their obligation and promising action according to your contract arrangements (e.g. put a lien on the property).
- Hire a collection agency to recover the amount owed. They typically take a percentage (25% or more).
- File a claim in small claims court. Each state has it own rules and even if you win they may not pay. Getting paid on time need not be a problem for restorers. By incorporating good communication skills, accurate documentation, and skilled restoration practices, success will be yours.