Lien waivers are one of the backbones to a fair payment system in the construction industry. The importance of lien waivers cannot be overstated, and neither can the need to understand their proper purpose and to utilize them properly. Read on to learn why it’s a good idea to send a lien waiver with every invoice.
Purpose of Lien Waivers
The main purpose of a lien waiver is to provide protection to the paying party. In exchange for such payment, the lien waiver “waives” the payee’s right to file a lien for the exact value of the payment they have received. In essence, the waiver works as a receipt for payment that protects the paying party from paying twice.
This is important to the payor as it frees them (and the property) of a lien liability for that specific amount. It provides reassurance that once payment has been properly made, they are no longer responsible for that dollar value.
Conditional vs. Unconditional Waivers
The type of lien waiver being used in exchange for payment is extremely important and should be taken seriously. Unconditional waivers should only be used after payment has been received – never before. This is because unconditional waivers are effective regardless of any circumstances surrounding payment. If payment is never made, then the party that is owed has nonetheless waived their right to file a lien for that amount and has left themselves in an unsecured position.
Remember: Unconditional waivers should only be used after payment has been received – never before.
A conditional waiver, on the other hand, should be used in conjunction with sending an invoice and prior to receiving payment. Here’s why:
Why You Should Always Send a Conditional Waiver
Unlike unconditional waivers, a conditional waiver is only valid once the specific condition has been met (generally that payment has actually been made). If payment is never made, even if the conditional waiver has already been signed and submitted, then the terms of that waiver do not apply.
Considering conditional waivers are only valid once the payment has been made, parties should always send a conditional waiver with each invoice. Why?
You Help Build Stronger Business Relationships
By including a conditional waiver with each invoice sent to your customer, you show that you are organized and understand the lien waiver process. This is a sign of professionalism and will only serve to increase your reputation as a business that truly “gets it.”
In addition, you are also proving that you are a team player. The lien waiver is an important form of security for your customer. By providing the conditional waiver to them, potentially even before it is asked, you are showing that you believe in transparency and in fair payment for both sides. This small and very easily doable action of cooperation can go a long way in making the entire payment process smooth and seamless for both sides.
You Promote Faster Payment
When your customer has their needed conditional waiver in hand, they are secure to release the payment that is owed to you. By sending the waiver along with your invoice, you avoid the typical “who sends first” game that a lot of parties without an understanding of the process undertake.
This also helps you avoid the all-to-common escrow solution, which often causes delays and is built on the foundation of mistrust. Ultimately, by providing your customer with the waiver that the need with every invoice, it allows them to then submit payment to you more quickly.
Potential Pitfalls and How Technology Can Help You
While the process of exchanging conditional waivers should be straightforward, there are potential pitfalls of which a party should take note.
First, some states have strict statutory waiver formats. Without following the exact requirements as designated by the lien statute, the waiver can be worthless.
Second, waivers are important documents that may contain complex legal language. While it may appear that the document is a “simple” waiver, there is a chance that it could contain unintended language that could waive rights that are not intended to be signed away.
Third, companies with high volumes of invoices will have a logistic problems to overcome. How can you manage the sheer volume of waivers being sent and received, coming from multiple parties, and in multiple mediums? It is important to track the paper trail of waiver exchanges so you can have a firm understanding of where you stand within each project.
Luckily, technology exists to help overcome all challenges presented above. This technology will ensure that your waivers are customized to your specific project, making them very easy to create and also formatted to correct statutory requirements. You can also have peace of mind knowing that the waivers you are signing come from a trusted source, and the language only contains the intended waiving of specific rights. There is no extra fine print to worry about. Finally, you are able to manage your waiver exchange across all projects so you can track exactly which waivers have been sent and when.
Talk to Us
Our entire business here at levelset is making the process of exchanging payments in the construction industry easier, faster, and more transparent for everyone involved. Obviously, managing lien waivers is a huge part of that. If you’d like to learn more about how we may be able to help you, please get in touch. We’re help to help and would be happy to talk to you about your payment issues.