A common misconception among all businesses—not just those in the construction industry—is that collections begin when you are owed money. That should not be the case.
Collection starts before you decide to extend credit. Before providing work or materials on credit, contractors need to consider that there may be collection issues in the future. Being intentional about the fact that, at any time, this new favorite customer could become a collection dispute, is an issue that continues throughout the business relationship.
Here are some easy steps construction contractors can take on the front end to protect your construction business, so you can collect the money you are owed and quit getting stiffed.
What Information Do You Need Before You Start the Project
- Always have a copy of the signed contract in your records before you start working. Don’t wait on a promise that they will get the contract back to you later. Insist that you have a copy of the signed contract before you begin working.
- Do the research and know who the owner is and have their correct address before you begin the project. This will ensure that if an issue does arise, your paperwork is in order.
- Make sure you have the correct address and phone number for the general contractor, and specifically whom you need to speak to about your payments, so you are not trying to figure it out when you are owed money.
- Find a good attorney and know how much they will charge you for a lien. This is so very valuable. Trying to make a hard lien deadline and finding a competent attorney who is familiar with liens can be very stressful, and you may not get it done on time and miss the deadline. Trust me, it is a breath of fresh air when you have an attorney that you work with and all you have to do is pick up the phone and say, “I have an issue,” and they can handle everything from there.
- Another way to push things along if you already have an attorney that you work with is to send an email to the general contractor and the owner and cc your attorney. This way, your attorney does not have to do anything, so you won’t get a bill, but it is made clear that you have an attorney who’s got your back if the issues are not resolved.
Sales vs. Collections
One of the first lessons I learned as a small business owner is that you cannot effectively be the salesperson and the bill collector; it just does not work. If the salesperson and the collection department are the same person, your customer will not answer the phone if they owe you money or think that you are calling to collect a bill. Even if it is someone else who works for your company, let them be the bad cop and make the collection efforts.
Make Sure You Know and Follow Your Lien Timelines
Knowing and following your lien timelines is essential for a profitable business. Without a lien, your likelihood of collecting your money is around 50%, but with a lien, it’s more like 95%. For questions or help with the lien deadlines for your state visit www.subcontractorinsitute.com.
Stand Up for Yourself and Quit Getting Screwed
Quit being afraid to take action. The money you are owed represents your labor, effort and time away from your family. You should fight for it. If you can’t do it for yourself, do it so the people that work for you can have a job and feed their families. They are relying on you to do the right thing.
Applied knowledge is power. Imagine the business opportunities that open up when you can secure the money you are owed. You run a successful business, and one of the key elements of a successful business is collecting the money you are owed. Contractors are fortunate that they do have ways of securing the amounts they are owed. Just imagine the companies out there that do not have these rights; if their customer goes out of business, they are just out of luck. But not you. As a contractor, you can secure your right to payment and collect from parties other than just the one that hired you.
Karalynn Cromeens is author of Quit Getting Screwed, Understanding and Negotiating the Subcontract, and creator of The Subcontractor Institute, has been a licensed attorney for over 17 years. She has spent her entire legal career in construction law, advising countless clients on how to avoid litigation. Cromeens is on a mission to educate and inform subcontractors about the importance of understanding their lien and collections rights, sparking change and leveling the playing field in the construction industry. This column is adapted from Quit Getting Stiffed.
