Prelien and Breathe Easy – A Follow Up Session

A couple of weeks ago we sent out an email that gave some accounts receivable tips and received quite a response. Thanks for all the feedback.  In this posting, we’re going to list a couple follow up questions / answers that we think would be helpful to everyone. We’d be happy to answer any other questions that anyone has.
Q. I have a lot of small projects under $500.00, should I send out preliens or file a lien?
A. We know the value of preliens and mechanics liens, but sometimes it just doesn’t pay to file or serve them. A good example of this is when you have a project that is less than $1,000.00.  Think of the cost and how it will benefit you. Some states don’t allow liens to be filed unless the contract amount is worth more than $1,000.00.  What we will say is that when you have a project that is over $1,000.00, it never hurts to send out a prelien (even if you have no intention of ever filing a lien).  A prelien, notice to owner, notice of furnishing and preliminary notice (they’re all the same, but the terms used varies in each state) can be as effective in getting paid as a lien because they make the owner know you’re serious.
Q. My customers get really upset when I send out preliens. How do I protect myself and keep the customer happy? 
Always be up front with your customers. They know you have the legal right to serve a notice of furnishing or notice to owner.  In fact, in most states, the contractor itself is required to provide the owner with a list of their subcontractors and suppliers. Tell the customer that it is your company policy to send out a prelien notice on every job, that sending out the preliminary notice does not mean that you think you won’t get paid, and that you’ll be wiling to say the same thing to the owner. If you’re able to have that dialogue, you’ll find that 9 out of 10 customers will be okay.
Q. I know there are time limits to when a lien has to be filed, but sometimes that doesn’t coincide with my customers net terms. What should I do?
Nearly every state allows at least 90 days for you to file a lien claim. There are exceptions, like New Jersey Residential Construction Liens (which require that the process begin with a filing at 60 days) and Ohio Residential Liens (which require the lien to be filed within 75 days). Unless you have net terms of 90 days, you shouldn’t have a problem with this time frame.  If you do have an unusually long period for net terms, let your customer know that you need to protect your rights and file a construction lien within the time period required by that state’s laws. The conversation is never easy, but it is necessary.  Our suggestion in general is that at 45 days past due, let customers know that they have 15 days to pay and then lien process will begin.  At 60 days, begin lien process.
Q. If I have strict collection policies, won’t people refuse to do business with me?
NO! Only the bad ones will!  The theme here (in case you haven’t notice it) is that customers are much happier when they know what to expect.  Just because you have strict collection policies, doesn’t mean people won’t do business with you.  Customers don’t like surprises and have more respect when they know you have the same policies for all customers.  They don’t like to feel that they are being singled out.