Why Restoration Companies Struggle With Late Payments — And How to Protect Cash Flow

Restoration companies play a vital role in helping homeowners and businesses recover from a wide range of disasters. Those include water damage, fire, mold and the effects of weather.

However, despite providing that urgent and high-value service, many restoration contractors struggle with getting paid on time.

Because we handle debt collections for restoration companies we know that late payments, insurance delays and billing disputes can put a heavy strain on the cash flow and increase the stress of owners and managers.

Restoration companies continue to struggle with these issues, and what can be done to minimize them is essential for building a financially healthy restoration company.

Let’s explore why many restoration companies experience payment delays and how they can protect revenue and cash flow.

Why restoration companies have challenges with on time payments

Restoration companies operate primarily under a different financial model. A traditional contractor quotes a job such as a remodel or renovation and schedules out timelines and payments. A restoration company operates in more complex nature. These jobs are often urgent, can be expensive and involve multiple parties including homeowners, insurance adjusters and others.

Some of the challenges include:

• Scrutinized high-dollar invoices.
• Insurance reimbursements.
• Confusion regarding financial responsibility.
• Extended processing of claims.

Payments by insurance companies account for many delays

Restoration companies experience payment delays largely due to the complexity of insurance reimbursements. These insurance claims often involve a lengthy approval process, multiple inspections, document requests, and disagreements over the scope of damage and work.

We’ve heard of many instances where a professional contractor completes the work, yet payments still take weeks or even months to be issued.

Because of this, a restoration company still needs to cover their basic expenses including payroll, materials cost for equipment rental and other overhead.

All these continue while waiting to be paid.

Customers can be confused about the responsibility for payment

Oftentimes, homeowners believe their insurance company will pay the restoration contractor directly and in full. Many times this is a mistake and they later realize they are financially responsible until insurance reimbursements arrive.

• This results in some common challenges for restoration companies.
• Customers will delay payments while they wait for insurance checks.
• A homeowner can dispute invoices even after work is completed.
• Challenges with deductibles being ignored.
• Partial payments can be held back by homeowners.

This is why it’s critical for restoration companies to be absolutely clear in their communication about financial responsibilities for services and how the payment structure is.

The impact of late payments on the restoration business

If you own and operate a restoration company, then what we’re going to tell you is probably no secret. Delayed payments can create a serious business dilemma.

Most notably, cash flow.

There are other ways that late payments impact your restoration company.

• Unpredictable cash flow.
• Lack of clarity when it comes to investing in growth.
• Relying on credit lines continuously.
• Stress on your leadership and management.
• Effects on your employees and workforce.

How can your restoration company improve cash flow and protect on time payments?

The first step in protecting your cash flow is to use strong agreements and communicate clear payment terms.

Your contracts should clearly state the financial responsibility of the customer, timelines for payments, deductible requirements and any consequences for paying late.

Clear and easy-to-read contracts with customers and a focus on communication can reduce these disputes.

Collecting deposits or partial payments up front is also a key strategy. Can you collect a deductible up front? Or at the very least, require an initial deposit? Getting a partial payment up front not only improves cash flow but also reduces your risk.

It’s also critical to educate customers early. You must set expectations and be detailed in your explanation of how the process works. Explain to customers how insurance companies process claims, payment responsibilities and expected timelines.

It’s also critical that your restoration business streamline any documentation process. That includes how you document claims with a focus on no mistakes. If there’s any doubt by an insurance company, that will only delay future payments. Make sure your team understands there’s no room for error.

You must also manage the accounts receivable process effectively.

There is no one-size-fits-all for getting customers to pay and that’s why a collection agency that works with restoration companies is a critical investment. You will face challenges in the percentage of customers paying despite your processes and efforts.

Finding a debt collection agency that understands your business and the unique