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According to the 3 Primary Traits of a Great Credit Manager. The first trait was that great credit managers “understand all of the hard work comes before credit is actually issued,” mentioning the proactive step of requiring Joint Check Agreements when confronted with a risky account.

This post examines why Joint Check Agreements are a great tool for credit managers in the construction industry, and explores the two circumstances when they may be used.

Why You Should Have A Joint Check Agreement Ready To Go At Anytime

Every account and construction project is unique and presents a unique credit challenge. Credit departments must be prepared for each of these circumstances.  Sometimes, that means getting a personal guarantee or a promissory note signed.  Sometimes, a joint check agreement fits the bill.

A joint check agreement is an agreement entered into by at least three parties.  The paying party agrees to issue payments jointly to two parties:  usually the paying party’s customer and that party’s customer.  A common example is when a general contractor agrees to issue payments jointly to a subcontractor and the subcontractor’s supplier.

If your company is confronted with a non-payment situation that may be solved by acquiring a promise to pay from a more solvent and reliable contractor, having joint check agreements and joint check language ready to fire off is important.

Proactive Joint Check Agreements Are Signed Before Furnishing And Before Incurring Debt

Joint check agreements are just that: agreements.  They can be entered into by any party at anytime, and they can include terms requiring pretty much anything (almost anything).

If your credit department really wants to furnish to a project but you can’t clear the customer with enough credit, a proactive joint check agreement at the start of the project may fit the bill.  The general contractor can agree with you and your potential customer to issue all payments to you through a joint check.

Presuming the joint check agreement language is written favorably, this instrument may be the security your company needs to proceed with the project.

 Reactive Joint Check Agreements Are Signed After Debt Incurred

Another circumstance that may warrant a joint check agreement is when an account starts to go sour.  Instead of putting the brakes on the account and discontinuing furnishing to the project, it may be possible to get a joint check agreement with the paying party.

As anyone in the construction industry knows, sometimes payments get delayed up the contracting chain. While your customer is not paying your account and the credit risk climbs, it doesn’t necessarily mean the customer is misappropriating funds or trying to avoid the debt. It may simply boil down to your customer not yet getting paid.

In these circumstances, credit managers can get a joint check agreement signed obligating the paying party to issue all payments to you jointly with the customer. This allows you to solve the risk problem without having to stop working the account.