Hey there Thea,
We have a new customer with a not very good credit report and we could use some advice on if we should go the joint check route with our customer and the general contractor. Would that be a good option or not?
— Double checking
Dear Double Check,
“Not very good” is a leap-of-faith way to say, “Maybe this will turn out ok.” I bet you were that kid who got a bucket of horse poop and started digging proclaiming, “I know there’s a pony in here somewhere.” Nicely spun.
But I commend your quest to find a way to say yes to a sale. Is a joint check agreement a good option? Depends. It might be a great solution—IF.
IF you can answer a few questions to make the decision based on information and using this tool to solve one problem, only to create another situation, then perhaps.
1. Is the general contractor creditworthy? Have you done any investigation on the GC? Pull a quick credit report and see what comes up. Google them. Any insight there? If the GC has good credit, then you have one company to build strength from. If the GC’s credit is weak or the credit report is one page of nothing, that joint check agreement is a non-starter.
2. Do you have a well-crafted joint check agreement? One that makes the trip worth the ride? Does it address what happens if the GC and your customer get into a money- stopping tiff? How does this peacock feather fluffing event effect your payment? Are the terms of payment with your customer the same for the joint check? The list goes on, but you get the idea. The cashflow stopper is in the details. Your objective is to get paid.
If you can answer “Giddy up” to both of those questions, then yes, the joint check may be the option of choice. If one or both of those is a showstopper, you have decisions to make. You can’t fix the GC’s credit, so if that is an issue, it’s a NO. This is not your stop on the credit solution ride. No matter how quality crafted your joint check agreement is, nothing overcomes crappy credit history, times two.
If the GC’s credit history is good but your joint check agreement is not up to par, this is your golden opportunity to amend that. Craft a document that addresses your main goal: getting the company paid regardless of what is happening between the other compadres in this adventure. Be specific. If you don’t know where to start, ask some credit managing buddies if they like their agreement and are they willing to share. Imitation is the sincerest form of flattery.
A joint check agreement is only good if the check actually gets cut. Your job is to make sure your agreement addresses the key issues: payment terms, when the payment is made, that other people’s problems are not yours, and issue payment direct to us and on time in case of squabbles. Get it signed by all parties. In this case, it is all about you.
Considering options on how to make the sale happen and setting yourself up optimally for payment is always the goal. Don’t get seduced by the easy fix. I applaud your willingness and effort to find a way to yes. The yes may not be the way they expected. Depending on the quality of the mechanics lien laws in your state, that may be an option. You could consider one shipment/project at a time supported by lien rights. It could be that COD is the only option at this point. Credit is a privilege, not a right. If the customer did the crime, they have to do the time in trade credit jail.
