This post is the second in a six-post series detailing the exact measures that you need to take to ensure you secure payment on every project, every time.
A recent article outlined a proven formula to ensure that you secure payment on every project. This relatively simple formula consists of 5 simple steps: Protect, Monitor, Warn, Secure, and Enforce.
This post focuses on the first step: Protect.
Preliminary Notices Should Be Sent on All Projects.
Sending a preliminary notice is a simple, but oftentimes overlooked step in the credit management process. Unfortunately, though, overlooking this easy but crucial step can result in a lot of trouble down the road. Preliminary notices should be sent on every project as a matter of policy. Some of the reasons to do so are set out below.
Reason 1: Preliminary Notices May Be Required
The first (and most obvious) reason to send a preliminary notice is that some form of preliminary notice is generally required by law. Almost all states require some type of notice prior to filing a mechanics lien, as shown by this infographic. Making sure that all of these required notices are sent is a crucial part of any lien policy.
Complete and total preliminary notice compliance is difficult because the differing rules and regulations across the country are complex and hard to accurately manage. This complexity can result in parties failing to comply with notice requirements without even knowing it until their subsequent lien filing is challenged, and potentially ruled invalid.
There are two solutions to this problem: 1) Research to make sure that all requirements (no matter how complex they may be) are met; or 2) Send preliminary notices on every project.
Both solutions work, but the second option requires much less time and effort. There is no negative consequence to sending more notices than may be strictly required, and in fact, it can provide a benefit. If you are unsure about whether a particular project requires a preliminary notice be sent — send it. The failure to comply with a mandatory notice requirement is much more detrimental than sending a notice that is not strictly required. Also, having a blanket “notice every project” strategy as part of a comprehensive credit policy streamlines the entire process and makes it much more efficient.
Reason 2: Sending Preliminary Notices Will Prioritize Your Invoice
Sending preliminary notices, and protecting your lien rights, results in the prime contractor or property owner prioritizing your invoices. Why? It’s simple: they have more exposure to parties that send preliminary notices, because those parties are able to secure the money owed to them with a mechanics lien. New technology and software platforms have been developed to help owners and general contractors manage project risk, and a key component is tracking which parties send preliminary notices. Sending preliminary notices on every project makes good business and financial sense.
Reason 3: Preliminary Notices Will Not Scare Your Customers Away
One of the main objections I hear to sending out preliminary notices on every project is that it will somehow “jeopardize customer relationships.” This just isn’t true.
The notice alerts them to your work, the value of your work, and gives a good first impression that your company is organized.
First, on construction projects in states where preliminary notices are required, property owners and prime contractors will receive a lot of pre-lien notices. And in fact, they expect to receive them. A property owner or prime contractor to an ordinary ground-up project or major renovation will likely receive more than twenty or thirty notices. No one gets terminated because of notices, and no one is “blacklisted” and not hired on another project because of them. Notices usually get filed away and, in most cases, the property owner and prime contractor appreciate receiving them. The notice alerts them to your work, the value of your work, and gives a good first impression that your company is organized. The same holds true for projects in states that don’t have a preliminary notice requirement. The notice merely works to let the parties above you on the payment chain know that you have furnished labor or materials to the project, and that your company is organized, and complies with solid business and credit practices.
Second, preliminary notices are not adversarial and don’t contain aggressive language. In fact, many preliminary notices note that “THIS IS NOT A LIEN” directly at the top of the document, and contain further language noting that the notice is not a reflection of the integrity of any party and that the noticing party looking forward to a successful business relation with the parties receiving notice.
Reason 4: Preliminary Notices are Data-Proven to Improve Your Collections
The infographic below provides a real-life example of just how effective this simple task can be for your company’s collections efforts.