Construction professionals at work

In every industry there is a need for collections. Most companies that I see from day-to-day are completely reactive in the collections approach. This is the company who waits to not be paid, then tries to do something about it last minute. This tactic is not a smart one to live by.

Be Proactive Regarding Collections

Companies who “make” it and become successful in the construction industry, have collections policy. Profit margins are so thin in the construction industry to begin with, therefore every dollar counts.

Having a collection policy is by definition a proactive move. Having a policy in place that will make each and every project a high chance of getting paid is what this policy is all about. Collection policy falls under the realm of a good credit policy. Collections do not start after a project has not been paid. They start from day from the first day that materials and or labor is furnished to the project.

Collections Is A Process

If a contractor has a bad debt and needs to begin the collections process, he is already behind the ball. A contractor has a much better chance at collection from a debtor when all notices have been sent, lien filed and the collections policy has been followed.

A typical example of a good collection policy in action looks like this: 1) Contractor or supplier has a written and fully executed contract with the debtor. This contract can contain non-payment language to protect the parties in the event of default or non-payment. 2) Contractor sends out preliminary notices when work or supplies are first furnished to the project. 3) All work is performed and/or supplies sent to the project in the manner required under the contract. 4) Contractor or supplier sends out invoices for all amounts owed with a time that the amounts are due within the lien deadlines for that jurisdiction. 5) If payment is not timely, then contractor or supplier files a lien on the property. 6) If no payment after the lien, then send a demand letter to the party who owes the money laying out the next legal steps which will occur if non-payment persists. 7) If still no payment, then either hire an attorney to file a lawsuit or have a collection agency see if they can harass the debtor for the money owed.

The process laid out above is cumbersome, but very few debts make it all the way to lawsuit. The statistics show a very small number of debts make it to lawsuit.

Define Where Outside Collection Agencies Fit In Your Policy

I mention collection agency contact above in step seven. In many cases, this may be a last resort, in other cases, using an outside collections agency may be part of the overall collection policy strategy. However, the entire premise of this post is to make a company so prepared that a collection agency and/or lawyer are not needed because the debt will be paid before.

Good Information To Have When In Collections

Undoubtedly the collection situation does arise. There are helpful items which can be gathered along the way when dealing with a company that will greatly increase the chances of collection if a judgment is obtained after a lawsuit. Helpful information: the full name of the company and its active members or officers, location addresses for the company, old checks paid by the debtor so that you can know where they bank, and other jobs that the debtor is working on. If the debtor has assets those are very important to know as well.

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