Collaborate with Sales to Ensure Accurate Job Information for Liens/Bonds

July 21, 2016   

Collaborate with Sales to Ensure Accurate Job Information for Liens/Bonds

Whether attempting to secure your mechanic’s lien rights on a project in California or elsewhere, collecting accurate information such as the correct job site address at the beginning of the job and using the sales team to help you retrieve the needed information is key.

“Job information is the cornerstone of the mechanic’s lien process,” said Chris Ring, of NACM’s Secured Transaction Services (STS) in a webinar Monday entitled Managing the Mechanic’s Lien Process State of California.

In a recent poll conducted by STS, 71% of respondents said their sales team was responsible for collecting job information, 18% said it was the credit team and 11% said both sales and credit collaborated in the effort. Most companies have the party that’s closest to the customer—the sales representative—gather the relevant information, Ring said.

Explaining the advantages to the sales team of obtaining the correct information about the owner, lender, prime contractor and subcontractors can go a long way in facilitating a more free-flowing exchange, he said. For instance, the credit team could explain that if the company has to write off a $15,000 order with a 3% margin because the proper information was not obtained and the account was not secured, sales of $500,000 in new business would have to be generated to offset the loss.

Once such information is collected, suppliers and others typically follow three steps to secure their mechanic’s lien rights: file a preliminary notice, file a lien or bond claim and file a lawsuit or foreclosure, Ring noted.

In California, for example, preliminary notices must be filed within 20 days of first furnishing. While a late notice may be served, it will only retroactively trap 20 days from the date of service. However, Ring noted that in California suppliers can submit a notice before the product is delivered to a job site. Also, businesses that file preliminary notices often have lower days sales outstanding (DSO) than the average.

The Golden State is also a “full-price lien” state, which means the claimant of a mechanic’s lien is entitled to the full amount owed from the owner, regardless of payments made to the general contractor.

California also gives suppliers another option to secure payment on construction jobs by allowing them to submit stop notices within 20 days of first furnishing labor or material. This notice halts draw payments from the owner to a general or prime contractor and often serves to encourage the general contractor in collection efforts, he said. Suppliers should never hesitate to use both the mechanic’s lien process and stop notice provisions on a job.

Still, the nuances in the California laws related to securing payment can be daunting for many businesses, Ring said. For instance, suppliers that provide installation services in conjunction with materials may be considered subcontractors and would need to obtain a relevant license. Ring suggested consulting with an attorney in order to avoid any undue liability related to proper licensing.

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