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Changing Your Payment Funnel

What happens when you have a customer whose account goes into default? Does your company have a policy to handle overdue accounts receivables?  If your company is like most others, you have a series of e-mails, phone calls, and letters that you send to the customer in the hope that you will receive payment.  We call this this process a “Payment Funnel”.

Construction companies and construction material suppliers have a distinct advantage when crafting their payment funnel: The mechanics lien.  There are a number of ways mechanics liens get you paid, but in this article we will discuss how even the threat of a lien can get you paid.

If part of your payment funnel includes a demand letter, or a “Dunning Letter” as it is often called, you can improve your collection times drastically by changing the content on the letter you send out.

How? Send a Notice of Intent to Lien instead!

What is a Notice of Intent to Lien, and How is it Better Than a Demand Letter?

You can think about a notice of intent to lien as a kind of demand letter, with more teeth.  In so many words, it essentially notifies your customer that if he does not pay the outstanding debt, your company intends to place a lien on the property where the work was performed. We consider the notice of intent to lien the secret weapon to getting paid in the construction industry.

A recent survey showed that, using the mechanics lien as a leverage tool, customers who sent notices of intent to lien, got paid 47% of the time within 20 days of sending the notice. So the next time you plan to send out a demand letter, consider sending a notice of intent to lien instead — or combine them! Read more about how contractors can write effective demand letters here.

How and When Should I send a Notice of Intent to Lien?

It is best to first monitor your lien deadline, and whether a notice of intent to lien is required for your project before filing a lien.  Once you determine the project’s lien deadline, pick a time frame that you are comfortable with (20-25 days prior to the lien deadline is a good ballpark).

When an account is past due and gets close to the timeframe you set, send out your notice of intent to lien and wait for the check to come in!

Want to learn more about incorporating the notice of intent to lien in your payment funnel?  Check out the Definitive Checklist for Construction Credit Professionals, it has all the tools you need to craft a strong payment funnel for your company.