Getting paid: nobody loves dealing with it; nobody can live without doing it. (practice).

Few aspects of professional life convey a greater sense of well-being than payments that arrive right on schedule. When accounts are received in good time, the universe is in order. The A-train ticks along like clockwork--bills out, checks in, bills out, checks in. What goes around comes around

Most architects hate the billing process. Because it's tedious, they put off doing it on a disciplined basis. Transferring all those billable hours to invoices is a burden. And if the amount owed is small, they're tempted to hold it another month.

No wonder bill-collecting has such a bad track record in the industry. On average, the collection period in architecture and engineering firms runs 65 to 70 days, says Howard Birnberg, M.B.A., who trained as an architect and heads up the Association for Project Managers, Chicago. In annual surveys, he also finds that three weeks pass between the time firms complete a billable activity and the time they bill it. Add the two, and it's a 90-day wait for payment.

"The typical architecture and engineering firm has about half or more of their total assets tied up in accounts receivable," Birnberg says. "And the cash they have in the bank is typically less than 5 percent of their total assets. That's why it's important to encourage quicker payment."

Chasing down delinquent accounts is no fun either. Birnberg's surveys show that architects never collect 3 percent to 4 percent of what they bill.

the setup

"It's a cliche to say I would rather concentrate on avoiding the problem than solving the problem," says Michael Hricak, FAIA, Rockefeller/Hricak Architects, Venice, Calif. "But early on in my career, I walked away from quite a bit of money because of the psychic energy it takes to chase fees."

Architects are uncomfortable talking about money, whether it's theirs or their clients'. But if you let clients know up front that you're careful with your money, the wisdom goes, they'll believe you're being careful with theirs, too. "Clients, deep down inside, want architects to be very good with figures, budgets, schedules," Hricak says. "While the client might want the best possible deal in terms of a fee, once that deal is struck, I find that most clients, if they're receiving perceived value for the money spent, will gladly pay it."

Hricak preempts unpleasant surprises by giving the client a payment spreadsheet when the contract is signed, showing approximately how much money will be due each month. For clients who want an even monthly cash flow, he'll simply divide the total cost over a one-year period--the average amount of time the firm takes to finish a residential project. "It sets out a level of expectation that you are planning for this project to break ground and be done in X amount of months. You can also tell the client, `By the way, that means I'll need decisions from you at the end of May, September, and November. I've built into this schedule five working days for you to review drawings and make decisions. If it takes longer, we'll have to extend the schedule by this amount.'"

Hricak's office works the payment pipeline, nailing down all the pedestrian details to define relationships and expectations. He asks who will review the invoices and write the checks, what days of the month checks are written, and, on large residential projects, whether there's a business manager or accountant involved. "I like to meet those people so we're not just a voice on the end of the line," Hricak says. "We'll show what our invoices look like before we bill them, to make sure it's acceptable. Half of it is due diligence, half is just plain schmoozing."

Indeed, a lot of billing issues are procedural rather than contractual. Birnberg has devised a two-page billing checklist that clients sign along with the contract and when the project's scope changes (see sidebar, page 36). It goes over such basics as where to send the bill--strangely, a piece of information that's often overlooked, Birnberg says--whom to contact for billing questions, what backup documents are required, and how the fees are determined. "It establishes the ground rules up front and shows the client that getting paid is important to you," Birnberg says.

a short leash

Mark Hutker, AIA, leaves no doubt in clients' minds that getting paid is important. With an 18-day average turnaround time on invoice payments, his firm is far ahead of the industry standard. "We're blessed to have an extraordinarily efficient payment situation, and I know it changed dramatically when we switched to billing twice a month," says Hutker, of Mark Hutker & Associates Architects, Vineyard Haven, Mass. As he explains to his clients, "If you put two people on a project and send an invoice once a month, you've put in 320 hours at an average of $100 an hour. Who's the banker in this scenario? The bottom line is, that's a huge amount of front-end cash an architecture firm has to carry."

Twice-a-month billing has its psychological benefits, too. People want to get their first bill out of the way before they receive the second one. And if there's a question or grievance, the clients react more quickly. The practice also keeps architects accountable. Says Hutker: "You need to listen intuitively to your gut as you're signing the bill. If you haven't had major meetings with the clients and they haven't seen anything you've done, you need to call and say, `We've been working our tails off; we've got 300 hours in here.' Communication up front is 90 percent of the battle. Keep the accounting period short, and if there are issues, they'll be resolved before you're $10,000 in the hole."

Hutker relies on his business manager to stay on top of the game. If a bill hasn't been paid by the time the second one rolls around, she attaches the previous one. And if there's still no word within two or three days, rather than wait for the client to call, she picks up the phone to ask if there are questions. "If it's a larger question about the stage of the project, she'll give me a heads-up and I'll call," Hutker says. "It has served us well." The firm takes a retainer large enough to ensure that the work never gets ahead of the money. Fast-track projects require more money up front because the hours pile up faster.

The large multifamily and mixed-use projects in James, Harwick + Partners' niche take on a slightly different perspective. The Dallas firm's real-estate-developer clients receive a package of invoices monthly, along with statements of outstanding invoices. The firm expects payment in 30 to 45 days, and the partners in charge of the projects stay abreast of potential snags. "Perhaps a closing has been delayed," says partner Bob James, AIA, "and that's where 80 percent of the money is coming from." An interest provision--more than what it would have to pay at the bank--kicks in after the invoice is past due. "We don't always assess that," James says. "We make a judgment call."

The firm works hard to establish bookkeeper-to-bookkeeper communication, to make sure no administrative issues are holding up payment. "Maybe there's a $20 print bill attached to a $20,000 invoice and they don't understand why," James says. "We make sure we're clean with their accounting department before we start pursuing aggressive measures in collection."

In fact, few offensive moves are necessary in JH+P's world of real estate, where relationships are everything. The firm has done between 10 and 20 projects with almost everyone in its client base. So rather than call in the lawyers to collect outstanding feasibility-study fees on projects that never materialized, the bookkeeper adds the amount to the developer's next project. "We'll say, `We spent $5,000 in pursuit of the old project, so we need to clear this up and add it to the next item,'" James says. The lag time is the cost of doing business with that client.

lords of the dance

So, what are the sticking points in this billing business? Hricak says change orders and scope creep contribute the most to collection problems. His mantra: Manage fees in the margins. "Failure to address added services at the point of origin is the root of payment failure," he says. The architect brings a card to client meetings that is filled out on the spot when an additional service is requested. It includes the work, the estimated fee, and the client's signature. "The client's request could be something as benign as, `Let's do several more design studies,'" Hricak says." `Well,' we say, `that will cost another $5,000,' and maybe the client says, `Maybe I don't need that study.'"

The same discussion is in order when the contractor delivers the bad news that the project will run on another six months. "As the client's trusted advocate, you're extremely reluctant to add to their discomfort by saying, `We need X amount per month to manage this project,'" Hricak says. "But talking about the relationship between time and money throughout the project is extremely important. Clients want you to be aware of the value of money and be fiscally responsible because you're looking out for their investment."

Reimbursable items are often points of contention, Birnberg says. Contracts should spell out what can be reimbursed, whether it will be marked up, and what supporting documents are required. JH+P's developer clients routinely ask for backup of all reimbursables, so if questions arise the information is right there. Hutker nips nitpicking in the bud by billing reimbursable items as a percentage of each invoice. "We have about 20 active, serious projects going on at once," he says. "To track phone calls, copies, prints, stamps, is extraordinarily time-consuming." Over the past five years, the firm researched the amount it spends on various and sundry expenses and came up with a percentage of the overall cost of the project. "We negotiate that right up front," he says. "All the time it used to take to track that for each project, we put toward marketing."

Billing by the hour opens up the potential for squabbles, too. Tom Price, of Tom Price Architects, Orlando, Fla., says in the few cases in which he's had to settle for a percentage of payment toward the end of a job, the dispute was over hourly services. As a result, "we spend a great deal of time documenting every tenth of an hour, just like we're lawyers," he says. Architect Barry Isakson, AIA, Architectronica, Redondo Beach, Calif., agrees that one of the chief ways to be unprofitable is to not accurately track your time. His firm (www.architectronica.com) custom-tailors time-and-expense software and invoicing systems for architects. "For small offices, the biggest problem is recording the time and getting paid," he says. "Being able to shorten that line is especially good for hourly work."

Hutker's architects log their hours onto an Excel spreadsheet, which can be collected quickly and formatted into an invoice almost verbatim. "We're not just pushing a button, but we're creating a description of what we're doing," he says. "I review the invoices to make sure we're being straightforward."

reading the tea leaves

But even the savviest billing system won't save a relationship in which the early warning signs went unread. Clients who negotiate hard in the contract stage for little or no interest on past-due statements are telling you outright that they're not going to pay on time, says Hutker. "You've got to look them right in the eye and say, `If you've got cash flow issues that affect me, I want to know it up front. If you're struggling with lines of credit running all over the place, it isn't a fruitful environment for getting creative.'" And Birnberg says mediation clauses are often counterproductive. For some clients, they're an invitation to negotiate rather than pay the bill.

Price refuses to do feasibility studies for private residential clients trying to decide on one single-family home site vs. another. Before he begins work, he asks for a survey to confirm that they own the land, so he can lien the property if they don't pay. "When you do that, you foreclose any possibility of future work with the client," he says, "but all for the better."

Although formal background checks for financial stability are generally taboo, most architects retrace a client's referral path. "We'll definitely call whoever referred a client, to thank them and also to get the scoop--are they fun to deal with, are they happy people? What are they motivated by?" Hutker says. He also recommends checking with the attorney or real estate agent who closed on a client's property. Price reads the Web sites of business-owner or CEO clients to find out more about them.

Nobody wants to resort to those last-ditch efforts of stopping work or engaging a third party to solve a conflict. Architects agree that after friendly negotiations fail, they've lost the game. It means they've done a poor job of managing the finances, and an awful lot of things were left unsaid. "You've got to dig deep and find out what the symptoms of nonpayment are," Hutker says. "You can get through most issues if you have a willing client who wants to solve the problem."

Hricak agrees. "Even our most difficult clients have been fair," he says. "Good businesspeople are looking for a reason to pay you what you're asking for. If you can demonstrate that, you can get paid."

RELATED ARTICLE: Howard birnberg's billing checklist.

Even though some billing procedures are in the contract, clients don't read them, says Howard Birnberg, Association for Project Managers Chicago. He asks them to sign this form when they sign the contract and whenever a project changes in scope.

Date prepared:
Project number: -- or change order no: --
Project name:
Client name and address:
Client's contact for billing questions:
Architect's contact for billing questions:
Send invoices to (name and address):
Others to receive copies of invoices (name and address):

General questions:

1. Is a client billing form required? (If yes, attach a copy.)

2. Backup required:

--all vendor and consultant invoices?
--vendors only?
--consultants only?
--other

3. Time-sheet copies required?

4. Audit required (for public projects)?

5. Day(s) of the month client processes invoices

Specific questions:

1. Fee basis:

--multiple of direct salary expense
--multiple of direct personnel expense
--professional lee plus expenses
--percentage of construction cost
--fixed amount
--hourly billing rates
--other (explain)

2. Maximum fee

3. Reimbursable maximum (if any)

4. Reimbursable markup percentages:

--all items equal?
--if different percentages to be used, list and include
  percentages used

5. Interest on delinquent receivables:

--percentage per month
--after how many days from the invoice date?

Client approval and date--
Design-firm approval and date--

Cheryl Weber is a contributing writer in Severna Park, Md.