Last week I wrote an article about the epic battle between Credit Departments and Sales Department. In examining how the two departments can co-exist, and thrive, we discussed a best practice of creating options to take new business. If a customer’s credit doesn’t qualify, in other words, what other options are there to bridge the gap and convert the prospect to a customer?
The article mentioned personal guarantees, joint check agreements, mechanics lien rights, bond claim rights, letters of credit and credit insurance. On their own, each of these items are huge topics. The options only work if they are utilized properly, and such utilization requires the credit manager have a depth of knowledge about each. The knowledge is legally oriented, which makes it complicated. Worse yet, however, if your company does business in multiple states you’ll need to know how the tools change from jurisdiction to jurisdiction. Yikes.
Let me boil it down for you: The credit options your company uses are only as good as your company’s practices in implementing them. This post reviews some legal tricks to utilize various credit tools, and thus, make extending credit easier and more successful.
Drafting Your Credit Application and Credit Agreement
Little is more important than your credit application and the agreement to extend credit. You want to get it right.Regardless of what your company will ultimately rely upon when extending credit to a customer, little is more important than your credit application and the agreement to extend credit. This is something that every single customer will sign. You want to get it right.
Earlier this year, our friends from Funding | Gates wrote a blog post here titled “Creating A Concrete Credit Application.” This outlined some things your company will want to think about when constructing its credit application. In addition to these, here are some other things to keep in mind:
- Get Good Data: You want good data on who your customer is, where they are located, their tax id or social security number, their bank account information, etc. etc. The data will be invaluable in the event of non-payment.
- Include Legal Terms To Give You Leverage: Your credit application doesn’t have to rape the customer; it can be fair. It should, however, be stern and put your company in a good position in the event of non-payment. That means including provisions that allows you to collect interest and attorney fees in the event of non-payment. This is so, so important.
- Get Your Personal Guarantee Right: Any good credit management policy is going to require a personal guarantee from customers without stellar credit, but how many of these personal guarantee’s get it legally right? Keep a few things in mind: (i) You want to get good data on the guarantee too; (ii) Make sure the personal guarantee is signed by the party in the capacity that they are guaranteeing, which usually means you want to not allow the signor to indicate a position (i.e. don’t let them write, “President”); (iii) Make sure you include an ability to collect interest and attorney fees in the event the personal guarantee must be enforced; and (iv) Expressly waive “discussion and division.”
- Complete It and Follow Your Polity! So you have the world’s greatest credit application and credit terms…but you’re not completely filling it in. ARGH! Take a look at this discussion in our Construction Credit Group on LinkedIn: How many credit managers are flexible on accepting incomplete credit applications? It is definitely a problem in the industry. It’s definitely something you want to not plague your business.
Managing Your Mechanics Lien and Bond Claim Rights
Managing mechanics lien and bond claim rights can be tough. While the mechanics lien or bond claim rights are very, very powerful, you must follow statutory requirements to avail your company of the laws’ benefits. The requirements change from state-to-state, project-to-project and circumstance-to-circumstance. It’s a very tangled web.
How do you keep track of it all?
Lien Law Seminars and education sessions are nice – really, they are nice. It’s never bad to have some background on how these laws work. It’s impossible, however, to gain the expertise required to navigate these lien laws on a national basis through one, ten, or one hundred seminars. Your company needs a tool.
Levelset , the Leader in Liens, is the publisher of the LienPilot platform, which enables companies to manage their mechanics lien and bond claim compliance requirements across the country. The proprietary system can handle large volumes of construction projects and instantly calculates every notice requirement and every lien deadline, making it effortless for your company to track these metrics.
You can rely on the mechanics lien and bond claim remedy to secure an account, but only if you can rely on the remedy. You can only rely on the remedy if your company has the confidence that it’ll be available to use, and that’s only possible through the complete management of the lien process.