When it comes to assessing a customer's creditworthiness, information is king. Gathering the critical information upfront helps subcontractors and suppliers set limits, reduces the chance of nonpayment and helps secure lien rights.
"The security of mechanic's liens and payment bonds afford you greater flexibility in extending the lines of credit to customers that may not be so deserving," said Chris Ring, of NACM Secured Transaction Services (STS), in the webinar "Managing Construction Credit and the Importance of Gathering the Right Job Information." Complete and accurate information at the start of a project is critical and supports filing a valid preliminary notice, which is the foundation of securing your rights.
"Serving a proper preliminary notification is the first step in securing your right to lien," Ring explained. "While it mainly serves as a notice to owner, it also serves as the foundation for collecting funds owed along with preserving mechanic's lien rights."
When extending credit on job accounts, Ring suggests using a job information sheet to set clear guidelines and to capture all of the project information for credit managers to review and verify. Given that lien rights vary by state, it's important to collect information based on the statute that covers the state in which the project takes place. (Subscribers of NACM's Lien Navigator can use the database to locate state specific guidelines.)
A job information sheet should identify where materials are being delivered, and provide information about the jobsite, the owner, general contractor and more. In situations where materials do not go directly to the project site, "you have to have some assistance with these orders," Ring cautioned. "The people who are receiving those orders must ask where the job site is located." It's extremely important to mark orders that aren't going directly to the jobsite with the job name, location and purchase order number, he added.
Once your job information is gathered, Ring emphasizes that credit managers must verify critical pieces of that information. "First and foremost, you must identify the customer's role," he said. "For example, is it a subcontractor, sub-subcontractor, supplier or the general contractor? Knowing where your customer falls in the construction tiers will help you know what your rights are based on state statute and type of project."
Identifying the exact location is also "really critical," Ring continued. The job site address and the owner's address are typically different so verify the address listed for the project location is accurate. "Did the customer or sales team give you a ship to address instead of the job's address?" Ring said. "A simple Google search of the job name and address can help identify a potential issue with the job's address."
Listing the type of project is also important. For example, add on the job sheet whether the project is private, public, federal, Native American, residential condos or leasehold.
The job information sheet should include details for all of the parties subject to notification of the preliminary notice. Ring recommends using a service such as NACM's Lien Navigator to determine who those parties are as well as timing of notification to protect lien rights. Not serving a required party will invalidate your notice. Does a notice need to be served on the owner, general contractor, subcontractor, lender, surety or mechanic's lien agent?
The amount and type of information may vary based on the customer's role in the project. If it is a private job, verify the address and who owns it, the general contractor and who hired your customer, Ring said. If it is public project, verify the property owner, general contractor, who hired your customer and bonding information linked to the project. Federal Miller Act projects would also need the same information as Public Little Miller Act jobs.
Even if your contract is directly with the general contractor, Rings advises that credit managers know who the property owner is. "This is crucial because the owner determines the type of project," he said. Lastly, when your contract is directly with a subcontractor, you may have to gather additional information such as obtain and verify the bonding info if the property owner is public or federal.
Lien Navigator subscribers can access Ring's entire webinar to learn more through the link provided above, and you can catch him as part of NACM's Virtual Plus Credit Congress as he presents with Mike Murray, Esq., of Lanak & Hanna, P.C., Session 30110, Job Information—The First Critical Step.
-Bryan Mason, editorial associate