If you’ve ever chosen not to file a lien or claim against a bond because you were afraid of losing or offending a customer, you’re not alone. These are common emotions shared by LBM professionals. Construction suppliers are often faced with difficult decisions regarding the lien and bond claims processes.
Without a doubt, implementing proactive plans before a construction project commences is the best way to secure your rights to get paid while minimizing your risk of conflicts with customers.
Here are five best business practices to reduce financial risks and maintain customer relationships.
1. Determine credit worthiness
Determining the creditworthiness of a customer before a project begins is a smart way to minimize your financial risks. If evidence of good credit is an ordinary component of your business model, it shouldn’t affect customer relationships. You can simply provide each customer with a credit application before engaging in the project.
The credit application should require general information, such as the full name and address, but should also request credit references. A credit report alone doesn’t provide all of the information needed to determine if the customer is creditworthy, but it does provide a snapshot of possible risks before moving forward.
2. Develop detailed contracts
It is vital to develop a contract that clearly spells out the details of the project in terms that are understandable and precise. The more time you spend on a contract prior to accepting the work, the better off you’ll be. As you delve into any project, your contracts should include:
Scope of work: Describe the materials you will provide and, if applicable, work that you will perform. It can also be beneficial to include the work, services, and materials you will not provide.
Price: Typically, the price corresponds directly to the scope of work. You should describe payment terms in as much detail as possible, including payment due dates.
Start and end dates: Include the project date of commencement and expected date of completion. The end date can be based on a number of days from the start of the project or can be a more decisive end date as agreed. It is very important to include details of what will occur in the event the job isn’t completed on schedule to avoid damages that may occur from lateness, such as liquidated damages.
3. Know your state’s lien laws
Typically, contractors think, “If I don’t get paid, I can just lien the job.” Unfortunately, by the time they realize they need to lien a property, they are beyond the timeframe allowed. Regardless of the role you play in the construction industry, arming yourself with the knowledge of the laws in your state is one of the best practices to reduce your risks.
Each state law varies on statutory forms, who and when to send a preliminary notice to, and the type of service required. In Florida, for example, if you don’t have a direct contract with the owner of the property, you’re required to send a notice to the owner within 45 days of first furnishing labor and/or materials to the project.
Sending preliminary notices are a smart way of securing your lien rights and are, in no way, a reflection of your integrity. To learn more about lien and bond claim laws in your state, visit www.sunraynotice.com/resources/
Develop a strong collection process
The most important aspect of developing a strong collection process is to remember that it is essential not to waive your rights to get paid. Securing your lien rights does not necessarily mean that a company will exercise its right to lien or place a claim against the bond. In fact, securing lien rights is the smart way to avoid the risk of nonpayment while securing your equity interest in a property.
Establishing a routine collections process within your company can ease tensions by insuring regular communication with your customer. For example, one of the many steps you can take within your collections process is to send a gentle, friendly reminder informing the customer of lien rights with a past due invoice.
These processes can actually help your business relationships and your reputation.
Don’t make emotional decisions
Making brash emotional decisions when a financial risk is looming increases tension associated with placing a lien. Emotions should be left out of the equation. Avoiding emotional conflict minimizes any guilt that can arise in these trying situations. These laws and safeguards are available to protect your right to get paid. Legally, it’s your right to collect payment for work that has been completed as contracted.
Consider putting your collections process in the hands of others who specialize in document services. This can reduce negative emotions as well as strengthen your relationship with your customers. By doing this, you are setting personal relationships aside and treating the relationship in the most professional way possible, a quality which most customers appreciate.
Filing a lien on a project does not mean that your customer is in terrible standing. There could be a number of reasons why you might have to obtain a lien on a project that have little to do with your customer, such as the owner of the property can no longer fund the project, the person who hired you is not the general contractor and is not paying your subcontractor, therefore, can’t pay you, etc. Many other scenarios may occur on projects and, whether you hire a construction document service to assist you or choose to maintain deadlines and send required documents yourself, the key to reducing emotions and staying on track is to remain consistent and professional in all communications with your customers.
Utilizing these five best business practices means that you can secure your money effectively. Rest assured knowing that securing your money doesn’t always mean that you have to lien a property; but if it comes down to it, you have secured those rights to claim and can utilize them without letting your emotions get the best of you. The statutes are specific and are there to protect you and your right to get paid.
Developing organized processes from the beginning of a project or regularly affiliating with construction document services can minimize your financial risks while positively maintaining your customer relationships. Securing your equity interest in a project by utilizing liens and claim on bonds is always a smart business decision.
Ariela Wagner is the founder of SunRay Construction Solutions, a national preliminary notice software and research service. She assists companies in developing processes to secure their lien and bond claim rights. Wagner also develops educational webinars and seminars. Contact her at 954.491.1861 or learn more at www.sunraynotice.com.