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We all know that construction projects involve a complex web of contracts, liens, and bonds. But have you ever thought about how to use these tools to expedite your payments? In this blog, presented by SunRay Construction Solutions and Leslie A. Boe, Shareholder/Director, Dysart Taylor, we will explore these tools in detail and help you get paid faster for your projects.
Understanding the Importance of Contracts
Let's begin with contracts, the foundation of any construction project. While the topic of our discussion is "Getting Paid Faster," it's important to differentiate between getting paid faster and getting paid fast. We all dream of the latter, but the reality is that numerous factors affect payment speed. However, there are tools and practices that can help you get paid faster than you would otherwise.
The Typical Payment Process
In a typical construction project, suppliers and vendors submit payment applications in various forms, like invoices or AIA-type certificates. These applications travel up the contractual chain and then return down once payment is disbursed. This process can create concerns for lower-tiered subcontractors and suppliers who wonder how long they'll have to wait for their payment.
Best Practices for Getting Paid Faster
To get paid faster, you need to implement best practices.
Avoid delaying action when slow payments are anticipated
To expedite payment processes, it is essential to proactively address potential delays. Rather than waiting for payment issues to escalate, take immediate action when you foresee that payments might be slow. This could involve sending out reminders, following up with clients, or initiating dispute resolution procedures. Timely intervention can significantly reduce the impact of late payments on your business's cash flow.
Prioritize effective communication within your company
Effective communication is the cornerstone of a streamlined payment process. Ensure that all relevant departments within your organization are in sync regarding payment expectations, timelines, and any potential obstacles. By fostering a culture of open communication, you can proactively address payment issues and collaborate to find solutions, ultimately reducing payment delays.
Set up red flags to encourage collaboration between accounts receivable and field personnel
To enhance collaboration between your accounts receivable department and field personnel, establish a system of red flags or triggers that prompt communication and action. Red flags could include indicators of potential payment issues, such as late project milestones or client disputes. By creating a system that alerts both teams when such issues arise, you can promote cooperation and ensure that any challenges are addressed promptly, facilitating faster payments.
The Squeaky Wheel Gets the Grease
In the construction industry, the old saying, "the squeaky wheel gets the grease," holds true. If money is tight and contractors are receiving inquiries about payments, those are the ones who will get paid first. So, don't wait; be proactive and assertive in your communication.
Understanding Your Contract
Your contract sets the stage for how you proceed in the payment process. It's crucial to negotiate and thoroughly understand your contract. Key contractual provisions can significantly impact on your ability to get paid faster. Make sure everyone involved in the process comprehends what the contract entails.
Dispute Resolution Clauses
Dispute resolution clauses in your contract are crucial. They determine how disputes will be handled during the project. Negotiation, mediation, and arbitration clauses can help resolve issues promptly and get the payment process rolling.
Compliance with Notice Requirements
Notice requirements within the contract are vital to protecting your right to get paid. You must provide timely and detailed notices for any changes in scope or delays. The sooner you give notice of extra costs, the faster you can initiate the process to obtain extra funds.
When to Suspend Work?
Your contract may specify conditions under which you can suspend work. While suspending work is a significant decision with project implications, it can be an effective way to get your payment if used judiciously. Consult with legal counsel before taking this step.
Document, Document, Document
Effective documentation is the key to getting paid and getting paid faster. Good documentation helps establish the cause of events, identifies actual costs, and preserves your rights.
Standardized Procedures and Consistent Practices
Standardized procedures and consistent internal practices ensure everyone follows the same protocols, eliminating gaps in documentation and ensuring clear communication.
Use Technology for Documentation
Today, we have the technology to make documentation easier and more accessible. Use smartphones and apps to record information and store it electronically.
Formal Communication
While technology has made communication more accessible, it's essential to maintain formal communication. Be cautious in written correspondence and avoid sending impulsive or informal messages, as they may come back to haunt you in disputes.
Why Lien and Bond Claims?
Lien and bond claims represent potent instruments for expediting payment. It's imperative to grasp the precise prerequisites, deadlines, and notice provisions associated with these claims. Timely and accurate submission is paramount to accelerate your payment process. The reasons for using lien and bond claims include:
Payment Assurance: Lien and bond claims provide assurance to contractors, subcontractors, and suppliers that they will be paid for their work and materials in construction projects.
Legal Recourse: They provide a legal means to recover unpaid amounts, even when disputes or financial issues arise during a construction project.
Risk Mitigation: They help mitigate the risks associated with non-payment, ensuring that subcontractors and suppliers can continue to operate and provide services.
Project Completion: Bond claims help ensure that projects are completed as agreed upon, as the surety company will step in to complete the work if the original contractor fails to do so.
Encouraging Fair Payment Practices: These mechanisms encourage fair payment practices within the construction industry, discouraging property owners and contractors from withholding payment without a valid reason.
Property Ownership Protection: Lien claims can protect property owners by ensuring that subcontractors and suppliers are paid, reducing the risk of property liens that could complicate the sale or financing of the property.
It's important for construction industry participants to be aware of the lien and bond laws in t and follow the necessary procedures to protect their rights and ensure they receive fair compensation for their work and materials.
Key Takeaway
Getting paid faster in the construction industry is possible by following best practices, understanding your contract, and utilizing the tools of liens and bonds effectively. Adhering to these best practices diligently can significantly enhance the pace at which you receive compensation. If you find yourself in need of any guidance or legal counsel, don't hesitate to contact us at SunRay. We are dedicated to ensuring you swiftly receive what is rightfully yours!
