Many in the construction industry fall prey to these payment myths – and encounter collection problems as a result.
1. “Don’t worry about it, we can always lien.”
Just filing a lien does not convert an unpaid receivable into cash. There must be equity in a property to collect.
2. “We don’t care about anyone on the project other than the customer.”
If your customer is not getting paid, chances are you will not be paid timely either. You need to increase your visibility on the project (such as with a Notice of Furnishing) and be unafraid to inquire about the status of payment.
3. “We’ll worry about payment terms after we get the job.”
Your leverage decreases once you have priced the work and are committed to the project. Insist on favorable payment terms upfront as you are pricing your risk and conditioning your bid.
4. “Don’t rock the boat until the job is done.”
Too many are afraid of making waves as issues arise during the job and miss critical deadlines for notice and action. Key leverage is lost and a hidden claim or extra that emerges at the end of the job never goes over well.
5. “It’s a bonded job, so no worries.”
While it is good that a bond is in place to secure payment, bonding companies are not known for moving quickly.
6. “Don’t offend the customer by asking for a personal guarantee.”
It is hard to get paid from an uncollectable legal entity. Insisting on a personal guarantee when credit is marginal makes sense.
7. “There is no real difference between ‘pay when paid’ and ‘pay if paid,’ is there?”
Absolutely there is. “Pay when paid” simply shifts the timing of payment, but you will still be paid within a reasonable period of time. “Pay if paid” deprives you of any entitlement to be paid – even if your work is done well.
8. “Waiving lien rights without consideration is unenforceable, right?”
Contrary to popular belief, many states – including Ohio – permit upfront waivers of lien rights by contract, even without payment.
9. “A bad contract is better than no contract at all.”
Written contracts often limit your rights. Sometimes an oral contract is better for the entity doing the work.
10. “Let’s wait as long as possible before we have to incur legal fees.”
Often an “ounce of prevention is worth a pound of cure.” If you wait too long before involving your lawyer, important rights can be lost and the dispute may become more expensive in the long run.
If you avoid these payment myths, you will be in a much better situation to be timely paid for your work.