In this blog, we will discuss collection tips and tricks that will provide you with valuable insights into the best practices for payment collection in the construction industry. From setting clear payment terms and communicating effectively to using technology to streamline processes, these tips and tricks will help you improve your payment collection efforts and ensure financial stability for your business.
9 Best Collection Tips and Tricks
So, let's talk about some collection tips and tricks, and what works best and what doesn't.
Tip 1 - Have a written contract
Having a written contract should be at the top of your list as it is the best way to protect yourself when someone asks you to sign on the dotted line. A contract that is well written and reviewed by a lawyer will help ensure that you are in good standing as opposed to an invoice or proposal that might leave you vulnerable. Good terms and conditions within the contract will help shield you from any potential legal issues.
Tip 2 - Exception – No Contract maybe better than Other Side’s Contract
The exception to the rule of always having a written contract is when the other party's contract would put you at a disadvantage. In most cases, it's better to have no contract than to sign a contract that's not in your best interests. But sometimes you must sign the other person's contract, so it's important to carefully review it before you commit.
Tip 3 - Right to recover legal fees and right to stop work if not paid
Suing to get paid, defending oneself from a lawsuit, or being sued all have one thing in common - the need for legal representation. And as we all know, legal fees can be quite expensive. This is why it is important to have a clause in your contract that states you have the right to recover legal fees should the need arise. Additionally, you will want to include a clause that allows you to stop work if you are not being paid. This way, you can avoid working for free and putting yourself in a difficult financial situation.
Tip 4 – Include your Customary Exclusions
Number three on our list is to have a ready list of exclusions in your contract that relate to your scope of work. There are always going to be things that you know you can't or don't do, and it's important to have that list ready so that there's no confusion about what is or isn't included in your price or schedule. Having this list ready to go will help avoid any potential issues later down the road.
There is another free tool to help you called the contractdetective.com. It's an artificial intelligence scanning tool that will scan your contracts and upload a PDF copy of it, highlighting and annotating any areas of concern like indemnity, hold harmless, limitations on liability, liquidated damages, pay when paid, and many others. You can use this helpful tool completely free of charge - in just 60 seconds, you'll have a clearer understanding of what needs to be changed or improved in your contract!
So, if you're questioning yourself about how to go about reviewing and understanding the meaning of your contract, the free Contract Detective tool can be of great help. It will scan your contract and include links to explanations for each section in layman's terms. For example, if you want to know more about liquidated damages, you can click on the provided link which will take you to a short video (roughly three minutes in length) that goes over what liquidated damages are in detail.
Tip 5 – Secure your Lien and Bond Claim Rights
When working in the construction industry, securing your lien and bond claim rights is essential to protect your financial interests. A lien is a legal claim against a property to secure payment for work performed, while a bond is a form of insurance that provides financial protection to parties involved in a construction project. Failing to secure your lien and bond claim rights can result in delayed or non-payment for work performed, which can be detrimental to your business.
To secure your lien and bond claim rights, it is essential to have a thorough understanding of the laws and regulations in your state or jurisdiction. It is also important to ensure that all necessary documentation, such as contracts, invoices, and lien waivers, are in order and up-to-date. Also, timely and accurate communication with all parties involved in the project is crucial to avoid misunderstandings and ensure payment is received promptly.
By taking these steps and being proactive in securing your lien and bond claim rights, you can protect your financial interests and ensure that your business is positioned for success in the construction industry.
Tip 6 – Don't wait to send your NTO until you are Unpaid
Sending a notice to your owner informing them that you have not been paid yet is not something you should procrastinate on. Do not wait to send your notice to owner, send it within the deadline.
Tip 7 – Be Cautious of those that tell you not to send an NTO or not to Lien
It is best to send the notice to the owner as soon as you sign the contract. Be very wary of anyone who tells you not to send a notice to the owner or not to leave the job - this is technically illegal in the State of Florida. No one can stop you from sending a notice or recording a lien.
We often hear from clients who tell us about how somebody else in their position did not get paid because they recordings or served a notice past the deadline. If you do not get paid, recording a lien or serving a notice to the owner won't give you your rights back. So be careful of missing the 45-day or 90-day deadline because once that time has passed, there is nothing that can be done to help you.
Tip 8 - Don't sign Unconditional Releases
It's important to be aware that if someone gives you a cheque in exchange for a release, there's always the possibility that the cheque is no good or that there are insufficient funds. They might also put a stop payment on it. Or, even worse, you might never get the check if you send them a release based on the promise of one. If your release is unconditional, then you will have given up those rights. So, our advice is to make every release conditional.
The SunRay system comes with built-in conditional releases, but if you have another release that you need to sign, you can go to makemeconditionalstamp.com. We'll send you a stamp for free that you can use to stamp any release, and it will make the release conditional on receiving the payment.
Tip 9 - Use the 6060 rule
It is important that you start the lien or bond claim process within 60 days of your last workday. Do not wait until the 85th day, as it will only take longer.
60 days from last work to lien bond claim (do not waste time past this) - If you are thinking about trying to do everything yourself to save time and money, think again. Although it might be tempting to go the DIY route, it is important to remember that things like this usually take much longer than anticipated - especially when you factor in things like gathering all the necessary information and making sure everything is accurate and up to date. And if someone on your team is out of the office on vacation or taking a sick day, it can really set you back. So, our best advice is to not wait until the last minute to get started on something like this. If you have not been paid for your work and it has been over 60 days since your last day on the job, that is when you need to start protecting yourself. This means putting together the process to file a lien or bond claim so that you can get paid what you are owed. So, remember, the sooner you start acting, the better off you will be.
60 days to aggressively collect yourself (calls, emails, text messages...) - The next 60 days are crucial when it comes to collections. You want to make sure that you are recording everything and that you serve your bond claim in a timely manner. Then, internally, you should start making collection calls, sending emails and text messages, and visiting people in their office. Whatever it takes, the next 60 days should be focused on trying to collect the debt.
Do not Delay, pursue legal help thereafter - If these two methods do not work, it is important to seek legal help as soon as possible. The longer a debt is past due, the harder it is to collect. So, the sooner you start the collection process, the better off you will be.
In conclusion, effective collection practices are crucial for the success of any business, and this is particularly true in the construction industry. We hope this guide has provided valuable insights into the best collection tips and tricks in the construction industry. By following these tips and tricks, businesses can streamline processes, increase efficiency, and ensure timely and consistent payment for work performed. It is essential to stay up to date with the latest best practices in collection to stay competitive and succeed in the construction industry. By implementing the strategies outlined in this guide, businesses can position themselves for long-term success and growth.