Managing credit within the construction industry presents unique challenges and opportunities. As a credit manager for a company supplying building materials to contractors and subcontractors, the ability to navigate factors like weather, economic fluctuations, and regional laws is essential for ensuring financial stability and success. Here’s a look at the tools and strategies that can make a significant impact:
One of the most powerful tools in construction credit management is the mechanic’s lien. This legal instrument allows suppliers and contractors to secure unpaid debts by placing a claim on the property where materials, equipment, or labor were provided. However, the specifics of mechanic’s liens vary significantly by state. For instance, in Utah, filing a preliminary notice on the State Construction Registry within 20 days of starting work is mandatory to have lien rights. Once you have filed a preliminary notice there are specific procedures and deadlines in order to secure your lien rights. Understanding and adhering to these requirements is crucial for safeguarding your company’s financial interests.
Payment bonds that are required on some projects provide another layer of security for suppliers and subcontractors, particularly on larger projects. By meeting the conditions required to file against a payment bond, suppliers can often secure payment even if other avenues fail.
Lien waivers are another avenue for facilitating payments on construction projects. These waivers, which can be progress or final, conditional or unconditional, assert your right to payment while managing associated risks. Progress waivers cover specific periods, while final waivers are used upon project completion or when your work is finished. Conditional waivers release lien rights upon receiving a certain amount of payment, whereas unconditional waivers assert that you have been paid in full.
A strong credit application process is fundamental in construction credit management. By having a thorough credit application and using tools like credit reports from organizations such as NACM, credit managers can effectively assess the creditworthiness of potential customers. This step is critical in minimizing the risk of non-payment and protecting against financial losses. Utilzing credit groups though NACM is another way to receive current credit information on your customers.
Verifying business entities with the Department of Commerce and contractors’ licenses with the Department of Professional Licensing is another essential practice. Ensuring that customers are registered business entities and verifying contractors’ licenses helps mitigate the risk of default and strengthens your position.
Engaging in continuing education opportunities and networking with peers not only enhances professional skills but also keeps credit managers abreast of industry trends, regulatory changes, and best practices.
By leveraging tools like mechanic’s liens, payment bonds, lien waivers, and effective credit application processes, credit managers can safeguard their companies against financial risks while building strong, mutually beneficial relationships with customers. Credit management in construction is not just about minimizing risk but also about assisting in growth and profitability.