In this blog post, we will explore these steps and discuss how they can safeguard your interests in contractual agreements.
6 Steps to Safeguard your Rights in Contracts
1. Have a Fair Written Contract
One of the most essential aspects of protecting your payment rights is having a written contract that is fair and comprehensive. The contract should clearly address payment terms and explicitly mention the consequences of non-payment. It is essential to understand that certain contracts may require you to continue working or providing materials even if you are not being paid. In such cases, your remedy is not to stop work but to follow the dispute resolution process outlined in the contract. Therefore, carefully review and comprehend all provisions of the contract before signing it.
2. Timely Send a Notice to Owner
Sending a Notice to Owner, even if not required by lien law, can significantly impact how seriously others perceive your intent to be paid. Even when you have a direct contract with the owner, it is highly recommended to send a Notice to Owner. This document serves as a clear indication of your commitment to receiving payment and can act as a check and balance on the payment process. Timely notice of every job, you work on, especially as a supplier to a subcontractor, helps secure your lien rights and increases the likelihood of getting paid.
3. Preliminary Notice
To strengthen your lien rights, it is advisable to send a preliminary notice for every job that meets a certain predetermined threshold, such as $250, $1,000, or $2,500. Establishing a process in your office to consistently send preliminary notices helps protect your payment rights and improve the chances of receiving timely compensation.
4. Cut Off Further Credit
Although it may be challenging, it is crucial to be prepared to cut off further credit on a job and other projects within the contractual limits. If you find yourself being unpaid for a certain amount, continuing to extend credit can exacerbate the financial loss. It is important to make a decision to protect your interests and cut off the customer if you no longer feel confident about collecting payment.
5. Timely Record Your Lien or Send a Bond Claim
Recording a construction lien or sending a bond claim is a critical step in protecting your payment rights. Ensure that you follow the applicable timeline requirements, typically within 45 days for a Notice to Owner and no later than 90 days for a bond claim or Notice of Nonpayment. By adhering to these timelines, you distinguish yourself from others who have not followed lien laws, significantly increasing your chances of being prioritized for payment.
6. Contact the Debtor Often
Persistence is key when it comes to collecting payment. Maintain regular contact with the debtor through phone calls, emails, and personal visits. By being assertive and proactive, you remind them of their outstanding obligation and increase the likelihood of prompt payment. Actively working through your credit department to collect debts is a best practice that can significantly contribute to successful payment recovery.
Protecting your payment rights requires a combination of a fair written contract, adherence to statutory requirements, and proactive communication with debtors. By having a well-drafted contract that addresses payment and non-payment scenarios, sending timely notices, recording liens or sending bond claims, and maintaining consistent communication, you can safeguard your interests and increase the chances of receiving the payment you rightfully deserve.