credit checks lien policy

In my opinion, security is an important part of a credit policy and I often wonder why it is not more fully utilized when available. To this end, I have written about the importance of businesses in the construction industry incorporating a robust lien and notice policy into their overarching credit policy on numerous occasions. The construction industry is uniquely well positioned to secure their extensions of credit because protection is built directly into the law of every state, as long as the proper steps are followed. Businesses in this industry really have no reason to have bad debt – basically everything they are owed related to a construction project can be secured. Since this is the case, what is the use of the rest of a credit policy? Are credit checks, personal guarantees, and the other parts of a proper credit policy even necessary when the debts are secured?

A Credit Policy Is More Than Just A Way To Recover Money Owed

At its most basic, a credit policy is indeed a set of procedures and guidelines to help a business make sound credit decisions, eliminate bad debt, and collect payment on all credit accounts. While the goal is always to have the end result be payment – that’s not the end-all be-all of a proper credit policy. A sound credit policy, and the sound application of that policy, helps a business identify good customers – with whom a long-term relationship is not only possible, but wanted.
It is true that a lien and notice policy, when properly followed, will likely result in payment – that’s the way the process is structured. However, in a case in which payment is not forthcoming of the debtors own volition, foreclosure of the lien may be necessary. While this is a power tool to procure payment, it is likely an equally powerful tool to alienate customers. Nobody wants their property sold.
The ability to identify good customers, and build relationships with those customers, is the real backbone and purpose of a proper credit policy. Sure, it’s possible to take all customers, secure their debt, and use the mechanics lien instrument as a stick to prompt payment, but that’s not sustainable. A good notice and lien policy is there to secure the debt as a last resort, to make sure you get paid if something goes wrong, to provide security and peace of mind that your extension of credit is protected – not to provide your sole collection mechanism.

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A Structured Credit Policy Grows Business

Creating a clear, structured credit policy provides a blueprint from which a business can grow and expand. The less you need to worry about payment, and can identify the parties with whom a business relationship would be beneficial, the more assets can be focused towards growth. All parts of the credit policy work in concert to provide this type of insight. Checking credit provides a good basic overview of the credit worthiness of the customer; determining which customer type will be extended credit streamlines the business process; knowing beforehand how restrictive or lenient your credit terms and decisions will be allows salespeople to focus on that customer-type. Each of the disparate parts of a credit policy has importance, and contributes to the health and growth of the business as a whole.
While mechanics liens, when used properly, are an essential part of a construction company’s credit policy, and can virtually eliminate bad debt – the use of the mechanics lien does not take the place of the other parts of a well-crafted credit policy – it merely works with them.

Credit Management: Are Credit Checks Needed Strong Lien Policy?
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Credit Management: Are Credit Checks Needed Strong Lien Policy?
Security is very important part of credit policy. Learn about credit managemnet with lien policy and importance of credit policy.
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