collecting bad debts and stopping them before they start

1 month ago

as an hvac contractor that has finished work on a project that is over 20 days old, do we have any recourse? what about with just repairs we do on a job? we have had a couple of jobs, that have not paid and I am just thinking about protecting ourselves in the future or filing if we fail to get paid immediately upon completion

Senior Legal Associate Levelset

When unpaid for construction work, Arizona contractors are generally entitled to file a mechanics lien to recover payment. However, to preserve this right to lien, Arizona contractors must first send preliminary notice – and that’s generally required to be sent within the first 20 days of first performing work on the project.

Let’s first look at mechanics lien rights and how preserving and leveraging those rights can secure payment. Then, we can move on to Arizona’s specific preliminary notice requirements, as well as some other options for recovering payment.

How do mechanic lien rights help with payment?
By filing a mechanics lien, a contractor puts the property owner’s title to their property in jeopardy. Owners tend to hate mechanics lien filings, and for good reason. A mechanics lien filing will make it extremely hard to sell or refinance the property, plus if the mechanics lien remains unresolved, the owner may even face the potential foreclosure of that property. More on how mechanics liens lead to payment here: How Do Mechanics Liens Work? 17 Ways a Lien Gets You Paid.

Note that the deadline to lien in Arizona is actually 60 days after a Notice of Completion is recorded (if one actually gets recorded), or within 120 days of the completion of the project.

Preliminary 20-day notice required to preserve lien rights
In order to preserve the right to file a mechanics lien later on, contractors must first send preliminary notice. This notice must be sent within the first 20 days of the project. It can be sent late, but a late notice will only preserve the right to file a mechanics lien for work performed during the 20 days before the notice was sent, then anytime after. Still, if a significant amount of work was performed within 20 days of when notice is sent, late notice could still be very much worthwhile. You can learn more about AZ’s preliminary notice requirements here: Arizona Preliminary Notice Guide and FAQs.

But, preliminary notices do more than just preserve mechanics lien rights. In fact, we’ve found that businesses who send preliminary notices on all their jobs have to file mechanics lien claims less often. This is because notices help prevent problems that might turn into payment disputes, plus parties who receive preliminary notices will know that the sender has preserved their lien rights – so they tend to make sure payment is made to those who have preserved their lien rights.

Forcing payment after a preliminary notice is sent, but before a mechanics lien becomes necessary
There are some ways to force payment without actually proceeding with a mechanics lien, of course. For one, sending an invoice reminder can help. Meaning, reminding a customer of an unpaid invoice and requesting payment might be a helpful first step.

For something a little stronger, sending a demand letter might be helpful, too. A payment demand letter, when properly drafted, can inform recipients of the seriousness of the dispute while also providing an opportunity to make payment before the dispute gets any more serious. More on that here: Demand Letters for Contractors – How To Write One That Gets You Paid.

To push things a bit further, but before actually pursuing a mechanics lien claim, sending a document like a Notice of Intent to Lien will often lead to payment. A Notice of Intent to Lien is like a warning shot – it informs recipients that if payment isn’t made and made soon, then a mechanics lien will be filed against the project. And, for the reasons discussed above, property owners are generally wary when a lien might be on the horizon – so they’ll usually respect the threat of a lien claim. More on that here: What Is a Notice of Intent to Lien and Should You Send One?

Other options outside of the mechanics lien process
Note that there are always other options for recovery available, including, potentially, an action in small claims court. If you believe you’re unable to file a mechanics lien, here’s a resource that might be helpful: Can’t File a Lien? Here Are Some Other Options For Recovery. If you’d just prefer to use some other way to secure payment through cooperation with a customer, this article discusses some good potential options: Don’t Want to File a Mechanics Lien? Here Are 5 Other Options

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