As someone working to get money in the door at a construction company, it will come at no surprise that payments come slowly. Very slowly. In fact, according to a PWC study of payment speeds across all industries, the construction industry ranked as the absolute slowest. On average, it takes a contractor 73 days to get paid after they’ve submitted their payment application or invoice.
This is crazy for any industry, but the construction industry is particularly capital intensive. You’re not in the business of selling some professional services like an accountant or attorney. You’re selling bricks, electrical wire, plumbing fixtures, lumber, concrete, paint, and the hard labor of getting this things to work perfectly in a building. It’s concrete stuff with hard costs. Waiting 73 days, on average, for reimbursement and payment on those hard costs is a challenge.
Of course you’ve heard of the mechanics lien, and you know what it is. Over the years, when one of those payments got delayed a little too long, you may have even thought about filing a lien. In this article, though, we’re going to talk about the mechanics lien process as a whole, and give you 3 reasons why it may be a good idea to use the process.
Understanding The Mechanics Lien Process (Which May Result in NEVER Filing A Lien)
You hear mechanics lien process and you think lien. I’m here to tell you that the mechanics lien process means the exact opposite. It means never filing a lien, and getting you paid at the same time.
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As explored in A Short History of the Mechanics Lien, these mechanics lien laws were first invented by Thomas Jefferson in the late 1700s, and now exist all across the country. They touch and affect and relate to ever single construction project, and one way or another, they affect every single construction payment. The connection to construction payments is made clear when it’s time to sign and collect lien waivers. Getting those lien waivers collected is important for the parties making payment because they’re trying to take inventory of who is supposed to get paid and who might have lien rights in the event money distribution goes askew.
Those lien waivers create delay. Figuring out who needs to sign the lien waivers creates delay. Having everyone making payment worried about who might have a lien right creates delay. This is a big part of what pushes your payment out to 73 days.
The mechanics lien process as a whole impacts this potential for uncertainty in a positive way. Most states have a preliminary notice requirement, which is simply a moment at the start of a project for contractors and suppliers to raise their hand and to let the others on the project know who they are, and most importantly, where to go to collect those lien waivers and other important documents at the start of the project. In other words, the mechanics lien process as a whole is designed to connect all the stakeholders together on a project, and not to drive them apart. Check out our visual guide to the preliminary notice requirements across the country.
So, now that we’re on the same page about the mechanics lien process, let’s talk about 3 reasons why embracing this process could be a great idea for your company.
1. Imagine Being At The Front Of The Payment Line
As someone working to get money in the door, do you feel like you’re company is at the top of the list when it comes time to issue payments? In other words, is the property owner or the general contractor putting your bill at the top of the pile? Or, are you having to make calls every day to “check on” the payment?
When it comes time to disperse payment, there are some tasks in the way, and one major task is that lien waivers need to be collected. The person in charge on collecting those lien waivers is going to take care of the low-hanging fruit first. They are going to collect the lien waivers from the contractors and suppliers on their list, with known and approachable contacts; and, importantly, from the ones with the strongest lien exposure risks. Those are the companies who have sent a preliminary notice on the project.
Many companies think that preliminary notices are there to “protect their lien rights” in the event of non-payment, but the companies who have the best financial practices actually look at these documents differently. They understand that these notices make the payment process smoother and easier for their customers, which gets them to the front of the payment line, and gets them paid faster.
Getting these preliminary notices sent out can actually be quite easy. You can either fumble around with forms, stuff envelopes, track mail pieces, and worry about whether you’ve done it all right…or, you can just put your project into Levelset and press go. Get a demo to see how you can make the preliminary notice part of the mechanics lien process super easy.
2. It Makes Your Project File More Complete
Embracing the overall mechanics lien process has a really pleasant side effect: you start the project off with a complete project file.
This is because the entire point of the preliminary notice and mechanics lien process is to connect the stakeholders and increase visibility. This gets all of those project file blanks filled in right at the start of the job. Know exactly who the property owner is, who the general contractor is, and even things like who the lender and surety on the project are. All of this information can be really valuable to a successful project, for some of the following reasons:
- Get context on who you’re working with. You may know your customer, but knowing your customer’s customer is super useful.
- You know who to contact about key project questions.
- Understand project risks more completely (Is it bonded? Is the GC a known slow payer? etc.)
You likely already spend a lot of time with the project file data. You likely spend time confirming the project location and address, and do some research to figure out the other parties on the job. Embracing the lien process increases the relevance of this data and provides a concrete reason why those blanks in the file must get filled in.
And the good news is that it can be quite easy to get all of this data without any work. Instead of trying to force your estimators and sales people to collect the information, calling yourself, doing web research, or getting lost in other tasks, just put the project information you know into Levelset. Our JobSight data product will take care of the rest. You provide what you know, and we’ll fill in the rest.
3. It Prepares You For Unexpected Problems That Could Sink Your Business
Okay, sometimes things go wrong. You know it. The average payment timeframe in construction is 73 days, but that means you can have some pay applications go without seeing cash for quite a long time. If you look today at your outstanding pay applications there may be a few past 90 days due, some others past 120 days, and one or two may just be hopeless. This isn’t a poor reflection of your company or even your customers. This is just the reality of construction.
A third reason why embracing the mechanics lien process is a good idea is because when unexpected situations do arise (and they will, eventually), you’ll be in the best position to save your company from taking a hard hit. You can always fall back on that mechanics lien right and put your company in the most optimal position to get paid. It may be the difference between staying in business, or going out of business. Literally.
So, just don’t take the risk. It’s prudent to embrace the mechanics lien process to protect your company from the unexpected, and along the way you’ll get all the other great benefits of embracing the lien process.
And again, actually filing your mechanics lien doesn’t have to be hard. You can fumble around with forms, deal with the county recorders, or go through the pains of hiring an attorney…or, you can just get it done quickly and easily with Levelset. Just like you use TurboTax for taxes, you can manage the lien process and file the necessary documents with Levelset.
Now You’re Ready To Benefit From The Lien Process
Now, you’re ready to reap those benefits from the mechanics lien process. Don’t feel intimidated. Every day, 30 new contractors sign up with Levelset to connect with other project stakeholders and make the mechanics lien process easy. They were doing all sorts of things before…ranging from “nothing” to “praying.”