Are your receivables are a bit of an issue? Well, you are not alone. Too many construction companies are letting their accounts receivable run wild, with some invoices extending even 180 days past due! By letting your customers go without paying, you are essentially financing their business without the benefit of collecting interest.
This post will outline steps you can take to eliminate invoices more than 60 days overdue, and collect on virtually all outstanding receivables.
Creating Your Accounts Receivable Policy
First, you will need to establish your terms for your customers (net 30, net 45, net 60, etc.). Send the invoice on the day that you finish working on the project (or the day that you last delivered materials). Then you must identify your state’s lien deadline based on your role in the project:
– Go to the Construction Payment Resources Page
– Pick your state from the map
– Note the notice and lien requirements for your role in the project (General Contractor, Sub-Contractor, Material Supplier)
Then pick a number of days between your payment terms and the lien deadline where you will file a lien. For example, if you are giving net 30 terms to your customers, and the state where the project is located gives you 90 days to file a lien from the last date you delivered labor or materials; a good recommendation would be to set the date you file the lien at 60 days after the invoice was issued (halfway between 30 and 90).
Lastly, file a lien on the property if you have not been paid by the deadline you set (60 days after the invoice was issued in the example above).
Once you have filed the lien on the property, you can remove the invoice from your accounts receivable report and focus on getting paid!
Use Levelset to File Your Liens
In our experience, filing a lien results in payment about 60% of the time without any further action. And the easiest way to file a lien is by using Levelset.
To recap:
1. Establish payment terms for your customers.
2. Identify your lien deadline
3. Set the a personal deadline when you will file a lien
4. If you haven’t been paid by the deadline you set, file a mechanics lien.
5. Get paid!
Note: Every State has different laws for protecting your lien right. Use Levelset’s Mechanics Lien Resources to make sure you are complaint, and always file a preliminary notice to eliminate the risk of not getting paid.