By Patrick Hogan, handle.com
Construction contractors are no strangers to uncertainty, and a split senate and congress can significantly impact the sector. Still, as we wait for changes to laws that govern payments to participants in construction projects, it’s best to be reminded of what bases to cover to protect your payments, regardless of the political season.
Strengthen your contracts
Contracts are the main risk management battlefield for construction project participants, so it’s prudent to pay special attention to insertions and clauses from all involved. Many subcontractors and suppliers fail to thoroughly review all contracts for various reasons: maybe they’ve worked with the same people multiple times and are counting on terms to be consistent, or a lack of awareness as to the possible risks an unexamined contract may entail if things go sideways.
There’s often some back and forth when it comes to finalizing contracts–remember to do a thorough review for each exchange. It’s only wise business practice. Of course, it won’t help to ascribe malice to every change in these documents, but you need to put review processes in place to protect your business interest at all times.
Maintain payment-related communication throughout the project
Clear communication is necessary for a project’s success. For many contractors, the focus is fulfilling contractual obligations. Sometimes, accounts receivables can lag in the priority list while causing the most stress and potential negative impact on the business. You must ensure clarity around payments from beginning to end, and any issues that crop up that impede getting paid on the agreed-upon timeline are addressed. Leaving the resolution of payment issues to the end of the project can cost you significantly, not only in terms of potentially losing payments entirely in case of serious problems but also in terms of payment delays that can severely impact your cash flow.
Invoice regularly
Invoicing regularly is a simple and easy way to ensure that you’re top of mind of your clients’ AP team. Progress billing, in many cases, is the ideal way of issuing pay apps for many contractors. Establishing the invoicing cadence at the beginning of the project is wise. This allows you to ensure that you’re in sync with your client’s payment cycle and reduces the incidence of non-payment due to missing documentation, red tape, or other easily addressable issues as long as they’re identified early on. This also reduces the awkward and uncomfortable interactions about billing–frequent invoicing promotes transparency and staying on the same page, which can only be good for any client-contractor relationship.
File all required preliminary notices
The mechanics lien is a cornerstone of payment protection for subcontractors, GCs, material suppliers, and other allied professionals involved in construction projects. Mechanics liens allow providers and vendors to ensure they get remuneration for the work and materials they have contributed to projects. Lien laws were created to protect payments in construction–an industry that suffers from long payment cycles and other payment issues.
The legal right to file a mechanics lien often is paired with the responsibility to fully inform all parties–sometimes including the county recorder–of your involvement in projects for transparency regarding who is responsible for what payment. Failure to file the required notices can cause you to lose your right to lien. Every state has its rules, so part of the responsibility is being familiar with the notice timing and documentary requirements for the states you operate in. Using a service for preliminary notice management is the best move because losing your right to file liens could be equivalent to not having the legal right to recover payments in case of issues.
Watch your deadlines
If payments go sideways and you find invoices unpaid after the agreed-upon timeline in the contract, remember that using your right to lien to recover payments also comes with corresponding timing requirements that, when not adhered to, can still jeopardize your right to compensation. It’s a reality many construction professionals and contractors have to deal with–the lien-filing process can be cumbersome, especially when you’re involved in multiple projects. Missing deadlines and failing to enforce liens within the timeline required could also cost you to lose out on payments.
Getting the basics right will always serve you well, especially in construction, where shortcuts are rampant, even when the stakes are high. Ensure that you have established processes to avoid needlessly risking your cash flow and bottom line. Use tools that streamline high-value work, especially those essential for business growth and continuity.
About the Author:
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors and material suppliers with lien management and payment compliance. The biggest names in construction use Handle on a daily basis to save time and money while improving efficiency.
