Georgia Construction, Bond & Lien Law Blog


Protect Your Revenues (Steps To Improve Your Collection Rate)

Posted in Commercial Collections,Practical Tips by Blue Blog on the April 3rd, 2013

Steps to Take to Collect on your Construction Accounts

 

by:  Mark A. Cobb

Over the weekend, I was speaking with an older gentleman who had held a prominent job in sales.  He had served in that capacity for decades despite changes in technology, product and the opening of foreign markets.  What were his secrets to longevity?  This question became even more pertinent after he shared with me that his sales were always 10 to 20 percent below the other salesmen who worked for his firm.  His secret?  His collection rate was virtually 100%!!

Frequently, today’s business are divided between sales departments and credit departments, but this gentlemen has been trained in a prior period when salesmen were also directly responsible for collecting on their accounts.  Thus, he shared, he would sell on (i) cash terms to anyone but (ii) credit was reserved for those who had a reputation or character for being honest and trustworthy.  In addition, if bills were not paid promptly (usually at the time of delivery!), he wouldn’t sell to them anymore.  This may sound harsh or contravene the call to sell, sell, sell.  But while other salesmen had quarterly sales of $1M, the company only received revenues of around $650,000, he claimed; whereas, his sales were only $850,000 but his collected revenue was also $850,000.  Thus, his bottom-line margins were much superior to his peers.

This insightful conversation reminded me of all the great things that anyone selling on credit can do to help make sure they get paid.  These suggestions are generally applicable to any business which supplies items on credit, however, they are written particularly with Georgia subcontractor and suppliers in mind!  Here are some ideas to consider and implement before issuing credit:

  • Obtain a signed credit application and credit agreement
  • Obtain useful information such as the debtor’s tax id number, social security number, home physical address, spouse’s name, bank account information, etc.
  • Require a personal guaranty agreement
  • Obtain useful information about the guarantor including correct spelling of his/her name, social security number, driver’s license, home physical address, bank account, spouse’s name, etc.
  • Make sure your credit terms include interest and attorney’s fees
  • If you are a third tier supplier or sub-subcontractor, make certain that you send a Georgia Notice to Owner and a Notice to Contractor (sometimes called a Notice of Furnishing) within 30 days of the first day in which you begin work on the job site
  • If you are working on or selling materials to construction projects, you must separate your billing (and invoicing) by project
  • Internally, make sure that you consistently use your customer’s full, legal name
  • Invoice your customer consistently and timely
  • Keep copies of delivery tickets or emails confirming receipt of your labor or materials
  • Require any changes in product or costs to be in writing and signed by the party who will be paying you
  • When payments are not made (or are NSF), consider re-evaluating the amount of credit your are willing to extend to your customer
  • If you are a specialty subcontractor or material supplier working on a Georgia construction project, make sure that your materialmen’s lien and/or payment bond claims are made within 90 days of the last day in which you worked (or within 60 days if you signed a Georgia lien waiver or bond release).
  • Contact a reputable Georgia construction collection attorney as soon as possible as “the early bird get the worm”

If your salesman and credit managers work together to recognize the importance of collecting proper information from customer up-front, then your collection rate should improve substantially.  If you need an experienced Georgia construction collection lawyer to review your credit application, credit agreement, personal guaranty or any other document, please feel free to call us at (866) 960-9539 or email us today.

  • Mark – This is a very good article that I think would be very helpful to credit managers (and sales people) in the construction industry. One thing I think you’re missing is the importance of having a credit policy and sticking to it. All of the stuff you list are actually components of the credit policy, and what you’re saying is basically to have a credit policy without mentioning the words.

    Companies need to be prepared and consistent with how they extend credit, and for that, they need a set of guidelines to lead them through this. They need to think through the legal components of the same, too, as you’ve gone through here.

  • Mark:

    Great article. Very practical points and a good reminder that a sale isn’t a sale unless you get paid.

    A material supplier once told me that it was too much effort and seemed too intrusive to ask for information about the project in which materials were being supplied: name and address of owner, name and address of general contractor, project location, etc.

    As a result, he didn’t have sufficient information to serve a preliminary notice (which is required in California) and by extension waived any rights to record a mechanics lien or serve a stop payment notice.

    Just as doing good business means doing good work and not cutting corners or gauging your customers, it also means doing right by yourself and your employees, and the good work they (and you) do.

    Best to you.

    GDM