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Mechanics Lien: How Great Companies Get Paid In The Construction Industry

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Getting paid in the construction industry can be tough, just ask construction business coach George Hedley. In an interview with him this week on the Lien Blog, Hedley stated that “getting paid is a mystery on every project.” If getting paid is a contractor’s biggest challenge and the process is a “mystery,” how does a business manage its cash flow, margins and success? How, in other words, can a business simply get paid in this environment?

Getting paid is an art that requires commitment to policies and process. In the construction industry, however, there’s an additional piece to the puzzle. Great companies know and use it, and as a result, they don’t lose money. That additional piece is the mechanics lien.

Mechanics Lien:How Great Companies Get Paid In The Construction Industry

Great Companies Understand Why Mechanics Lien Claims Work

A mechanics lien is pretty useless if you don’t understand how and why these claims work. Really. It’s unfortunate that the term is such a buzz word in the industry but massively misunderstood. The result is that folks sometimes sink money into filing liens without ever getting an impact. The reason for this is that they simply lack understanding. So, how do mechanics liens work?  Why do they work? Last year we put together a SlideShare presentation on this topic: 17 Ways A Mechanics Lien Works to Get You Paid. In short, a mechanics lien claim has two primary effects:

  1. – It allows you to skip over the person you contracted with and seek payment from other parties on the project, such as the property owner and the general contractor; and

  2. – It secures your claim by holding the property as collateral for your debt.

Think about that. It allows you to sue people you didn’t contract with and it takes the property as collateral. That is a pretty powerful. It puts a contractor in the same situation as a secured creditor, like a bank. Banks almost always get paid, and you can too.

Great Companies Always Protect Their Mechanics Lien Rights With Preliminary Notices

There is a kink with your mechanics lien rights: you must preserve them. Since the mechanics lien laws are so powerful, most state legislatures have passed laws that require potential claimants to preserve their right to file a mechanics lien claim at the very beginning of a construction project. Typically, a “preliminary notice” must be sent within a certain period of time from when work or materials are first furnished to the project. This notice is different in every state, and must be sent to different parties in various methods of delivery depending on the state’s law, the project type and your role in the project. Many companies simply disregard this preservation requirement and only pay attention to the lien laws when the going gets tough. Great companies, however, care deeply about their mechanics lien rights. They protect their right to lien on every single project.

If Unpaid, Great Companies Pull The Trigger

You’d be surprised to learn how often a company sits on their mechanics lien rights, and then sits some more, and then some more. They listen to promises from their customer of future payment, and they worry about the ripple effects of a mechanics lien filing. They don’t pull the trigger and their debt ages beyond rescue. Don’t do this. Mechanics lien claims are a fact of life on a construction project. Hundreds of thousands of lien claims get filed every year across the country, and millions upon millions of preliminary notices are delivered. Lien filings are an entire industry. If you have the right and you’re unpaid, use it.  Don’t lose it. Great companies understand this. They have a credit and collections policy that requires their accounting and credit departments to measure every account. When an account is delinquent to a certain degree they pull the trigger and file the mechanics lien. They are agnostic about all the other variables. They only care about one metric: their bottom line. That’s the metric most vital to your business.

Zlien provides software and services to help building material supply and construction companies reduce their credit risk and default receivables through the management of mechanics lien and bond claim compliance. You can connect with Zlien on TwitterLinkedIn and Google+.

About the Author:

Scott Wolfe Jr. is the CEO of Zlien and the founding author of the Lien Blog, a leading online publication about liens, security instruments and getting paid on every account. Scott is also a licensed attorney in six states with extensive experience in corporate credit management and collections law, with a specific emphasis on utilizing mechanic liens, UCC filings and other security instruments to protect and manage receivables. You can connect with him via TwitterLinkedIn and Google+.

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