If you are a Texas subcontractor or supplier, you know about the 15th of the month. It’s the one day of the month that seemingly everyone in your office frantically scrambles to make sure the correct Texas lien notices are going out in the mail. This an unnecessary exertion of effort that can easily be avoided.
Before I get into the explanation for why this is unnecessary, I would like to tell a story. In Southeast Texas, there is a town called Beaumont, and in Beaumont there is a medium-sized electric supply company we will call J&J Electric Supply (not the real company name). J&J Electric Supply has been around since 1973, has 2 locations in the Beaumont area, and has roughly $2 Million each year in revenue.
Just like most other building material suppliers in Texas, J&J Electric sends out Texas lien notices for accounts that are overdue. What’s different about J&J Electric, however, is that they send out their Texas lien notice on the 12th of the month rather than waiting until the very last minute. They respect their customers just like the next company, but they have decided that they are unwilling to forfeit their security rights by waiting to get paid before sending the notice.
They have not suffered in sales and they have not lost customers because they are transparent and have set the expectation with their customers. As a result, they have reduced the number of notices they send each month and have improved collections rates.
Here are the reasons why they don’t wait until the last minute to send Texas lien notices:
1. They could miss their notice deadline
Most credit managers and business professionals have heard the saying “the check is in the mail”. Trying to collect from long-time customers becomes more a game of trust than a game of finance. Customer will tell you that they are paying today. If that day is the 15th of the month, and the payment doesn’t come in, and your notice doesn’t go out, then the lien right is gone.
Perhaps most of the invoices will eventually get paid, but it is best to be prepared for the event that the $30,000 invoice doesn’t come in and you will need your lien right to influence payment from the customer.
2. They don’t want to wait for payment
Contractors know that the 15th of the month is the day for sending notices. Contractors also want to stretch out their subcontractors and suppliers as long as possible. By enforcing an earlier deadline, your customers will know that your company is professional and is prepared to use its mechanics lien right if necessary. This often results in faster payment, and better cash flow for the supplier.
3. They want to encourage payment from high-risk customers
Sometimes the advanced deadline does not influence the customer and the notice must be sent. This is not the worst case scenario. Sending notices in Texas not only protects a future lien right, but is also a gesture to show the customer that you are serious about collecting the money that you deserve. For high-risk customers, this can greatly improve your company’s ability to collect, and thus to secure more high-risk business.
J&J Electric Supply is the type of company that understands the importance of protecting its mechanics lien rights. Learn more about using lien rights to secure your receivables. Join the levelset Credit Academy.