Credit Policy

As I’ve mentioned many times before, securing extensions of credit should be one of the foundational components of any successful credit policy, at least for companies in the construction industry.[quote style=”boxed” float=”left”]in my opinion, a solid preliminary notice policy is the most important part of a lien policy[/quote] A main reason for this is that the factors considered before extending credit all boil down to risk assessment — how likely it is that you think you are going to be paid. When you are able to secure the extension of credit, the likelihood of payment skyrockets, and the extension of credit can be approached in that manner. It’s no secret that a secured creditor is in a much better position to be paid than a general unsecured creditor. Because of that, a company that routinely secures its receivables is better able to make credit decisions, and is able to feel secure in extending credit in more instances. For parties in the construction industry security is built directly into the law, in the form of the mechanics lien. In many cases, however, in order to retain the benefits of the mechanics lien instrument, the potential lien claimant must have sent preliminary notice.

Sending Preliminary Notices Is Important for Credit Policy

If I’ve said it once, I’ve said it a hundred times throughout posts on this blog: preliminary notices can be crucial to lien rights. For this very reason, I’ve noted that, in my opinion, a solid preliminary notice policy is the most important part of a lien policy. Since many states require some form of preliminary notice in order to preserve lien rights, making sure that all required preliminary notices are sent, in order to make sure that no potential lien rights are lost, is the most important part of any Lien & Notice Policy. The problem is that the various rules and regulations all throughout the country are exceedingly complex and difficult to manage.[quote style=”boxed” float=”right”]your company’s ability to follow its own mechanics lien policy is completely dependent on first making sure that notice requirements have been complied with on every project.[/quote]

Despite the complexities, however, it is imperative that complying with notice requirements is an integral part of a company’s mechanic’s lien policy. Failure to send a notice when it is required, to whom it is required to be sent, and by the manner in which it must be sent can extinguish any potential lien right for that project. This is a serious consequence. The ability to place a lien on a property on which you furnished labor and/or materials is dependent upon following the applicable notice rules. That mean your company’s ability to follow its own mechanics lien policy is completely dependent on first making sure that notice requirements have been complied with on every project. Therefore, notice policy is the most important part of the mechanics lien policy.

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Sample Notice Policy

Notice must be sent on all projects.

Notice will be handled via outsourcing to (notice outsourcing company).

To ensure compliance with state notice requirements, all project information will be submitted to (notice outsourcing company) prior to beginning work.

Project will be checked for potential notice documents that may be required to be sent:

1.  Prior to beginning work

2. _____ days after work has begun

3. Upon completion of work

Alternatively, notices may be handled in-house. If notices will be handled in-house the notice policy should define the individual(s) responsible for notice compliance. If notice compliance is done in-house, something similar to the following should also be included in the notice policy:

Notice must comply with state law. To accomplish the same:

State Requirements checked prior to beginning work  _____ (initial when completed)

State notice requirements re-checked when work begins _____ (initial when completed)

State notice requirements checked finally when work completed _____ (initial when completed)

To ensure compliance with state law, a checklist will be created for each project. The checklist will be marked when each step has been accomplished. The checklist will include:

Date(s) notice(s) must be sent

Party(ies) to whom notice(s) must be sent

Method by which notices must be sent

Sample Notice Checklist:

State: ______________________________________

Notice Required: Y / N? ______

Parties Required to Receive Notice:            ________________________________________   ______ (initial when completed)

________________________________________   ______ (initial when completed)

________________________________________   ______ (initial when completed)

Deadline to Give Notice: _______________          Date Notice Sent: ____________________

Method by Which Notice Must Be Sent:     ________________________________________   ______ (initial when completed)

Enter Tracking Number(s) If Applicable:  ________________________________________

A copy of each notice, together with an affidavit of service noting the date and method of sending and the identities of the parties to whom it was sent, will be kept in the project file.

Strict adherence to a solid notice policy, whether in-house or outsourced, enables a company much more latitude in extending credit, allows the company to feel more empowered to extend the credit and make sales, and forms a strong foundation for the credit policy as a whole, and the lien policy, specifically.

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Credit Policy: Preliminary Notice Policy - Levelset
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Credit Policy: Preliminary Notice Policy - Levelset
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Securing extensions of credit is an important part of a good credit policy. For parties in the construction industry, a good preliminary notice policy will help get them paid.
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Levelset
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