So, you work for a construction company helping to run the office, and one of your responsibilities is accounts receivable, or collections. Do you ever find yourself in a situation where you need to file a lien on a slow-paying job, but you have to wait for your boss’ approval before filing it? Here at Levelset, we encounter this scenario frequently from both our subscription and our pay-as-you-go customers.
While we understand that it’s the boss’ job to make important decisions, waiting to file a mechanics can be risky since mechanics lien deadlines are usually strictly enforced. If you miss your deadline to file, your lien claim will likely be dead on arrival. In this article, we’ll provide you with helpful tips to help your boss understand why you need to file that lien sooner rather than later, so that you never miss a lien deadline and get your money more quickly.
What Needs Explaining?
If your boss wants to sign off on a lien claim before you file it then you’re not alone – it’s very common for the folks in the construction industry that are responsible for getting money in the door to need approval from management and/or ownership before moving forward with a mechanics lien. Mechanics liens are great collections tools, but the decision to file a lien can be a big one, especially if it’s your first time! Here are some of the more common questions that people just like you need to answer in order to get their boss on board with proceeding with the lien:
- Have you exhausted all other opportunities before deciding to file a lien?
- Can you justify the investment you would be making to pay for the lien filing?
- Will it be bad for business to file a lien on one of your customers/ jobs?
- What do you have to do after you file the lien?
In the following article, we’ll discuss each how to answer each of these questions a little further.
Have you exhausted all other opportunities before deciding to file a lien?
A mechanics lien is probably not your first stop when it comes to unpaid invoices and slow paying jobs, nor should it be. It might sound counterintuitive, but Levelset is not in business to just file liens. No, Levelset is in the business of getting you paid, and it just so happens that there is a very powerful, legal tool created especially for the construction industry, well over 200 years ago, that works to help businesses just like yours get paid – the mechanics lien.
Although, mechanics liens are an excellent tool that empowers construction companies the money that they’ve rightfully earned (check out 17 Ways a Mechanics Lien Gets You Paid for a great breakdown of how mechanics liens work), since filing a lien is a significant, legal step, your boss probably wants to be sure that all other steps have been taken before escalating.
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If you’re using a CRM or a lien rights management platform like Levelset, you can log all of your interactions that lead up to a lien filing, such as sending an invoice, filing a preliminary notice, sending late payment reminders, or making follow-up emails and phone calls. Have all this information organized and available to show you’ve covered all your bases – and exhausted all other options – before coming to the conclusion that the only remaining option available is to file a lien to get paid.
More Info: 50 State Overview of Mechanics Liens | Construction Payment Resources from Levelset
Can you justify the investment you would be making to pay for the lien filing?
Depending on how your company does business, you may handle your lien filings in-house, through an attorney, or with another company, such as Levelset. (Amazingly, some construction companies forgo their lien rights entirely, trying to solve payment issues with other, shall we say, ‘less effective’ methods).
Even if you’re managing your company’s lien rights internally, either by yourself or through in-house counsel, there is still an investment to be made to get the document filed (filing fees) and served (certified mail in some cases, or process server fees). If you have to enlist the help of a firm or other company outside of your own, then you need to show your boss what the return on investment will be.
This is a relatively straightforward cost/benefit analysis: how much are you owed, and how much will it cost you to file the lien? As long as the amount owed to you is greater than the all-in cost of filing the lien, you should be okay. Now keep in mind that the cost to file a lien varies greatly from state-to-state, so the cost/benefit analysis in the state where you’re filing may be different.
But be careful, because some of the other options you have – such as using an attorney – can be very expensive with the overall cost adding up quickly, sometimes so quickly that the cost will exceed the benefit before you even realize it.
Will it be bad for business to file a lien on one of your customers/ jobs?
Although it may seem ironic to worry that filing a lien will be ‘bad for business’ when you’re the one who’s not getting paid the money you earned (I mean, really!), you’d be surprised at how many companies, business owners, and managers in the construction business share this exact same fear. Some folks fear that this could disrupt the relationship they have with the customer or that their company might earn an undeserved, bad reputation as being “difficult” to work with.
We already said this once before, but it’s worth repeating: Levelset is not in the business of filing liens. We’re in the business of getting you paid the money that you’ve earned. That’s why we want people in the construction industry to think of filing a lien not as a stand-alone act, but just one step in the long, complicated, but very effective process of securing payments through lien rights management.
That means that all of the things in the process that come before filing a lien are just as important as the lien filing itself. This includes proactive communications with your customers on the project – sending preliminary notices to promote visibility and collaboration. Before filing a lien you can also send a demand letter or better yet, file a Notice of Intent to Lien (NOI). [Note, in some states NOIs are required before you can file a lien.] You can even use the Lien Resolution Center, a service provided by Levelset to resolve payment issues before having to go to court. If all else fails and you do have to file the lien, once you receive payment and amicably resolve the situation, you can file a lien cancellation/ satisfaction to remove the claim from the property.
What do you do after filing a lien?
Sometimes, filing a lien may seem like more work, and your boss wants to know what you will be getting into if you file. Here are five steps to take:
- Send the mechanics lien to everyone
- Call the person most likely to pay, and then call the property owner
- Send letter warning of foreclosure
- Escalate to collections
- File foreclosure lawsuit
Read more:
What To Do After Filing A Mechanics Lien | Levelset
Thinking About a Mechanics Lien Process? 3 Reasons It Could Be a Good Idea | Levelset
Filing a mechanics lien is a smart and powerful tool to get paid. By using the above tactics, you should be able to successfully determine that the benefits of filing a lien outweigh the costs and will have the information ready to present to your boss. If you have any other questions about how to talk to your boss regarding mechanics liens or any other construction industry payment issue, please leave a comment below and we’ll be sure to get back to you.