Non-Payment and Extending Credit: Ten Considerations for Contractors and Suppliers
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Your company is not a bank. You are not in the business of lending money over extended periods of time.
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Just because the general contractor has not been paid does not mean that you should not be paid (see item #1).
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Remember that you have other remedies besides a construction lien. Delivering a written notice of lien can be an effective way to stop the flow of funds on a project. Likewise, a breach of trust claim can be a powerful tool.
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Agree upon credit terms in advance. Be consistent, clear and concise. Obtain information about your customer by way of a credit application, including the correct legal name of the business, and current banking information.
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Do the Due! Conduct appropriate due diligence including: (a) credit searches; (b) reference checks; (c) property and corporate searches; (d) writ searches.
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Identify problems early. Warning signs to watch for include: (a) slow or non-payment; (b) N.S.F. cheques or post-dated cheques; (c) cheques coming from someone other than the customer; (d) re-structuring or presence of outside people such as an accountant or “consultant”.
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Get something in return. In exchange for revised credit terms, seek an acknowledgement and agreement on the amount of the outstanding debt, or additional security if necessary.
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Lawsuits are inevitable. Good procedures and record keeping reduce the cost of lawsuits and increase the likelihood of recovery in collections. Consider whether your company has a clear mechanism for acknowledgement of receipt or pick-up of product.
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Know when to cut your losses. $100 today is worth more than the possibility of $125 two years from now. Don’t be afraid to cut deals!
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As hard as it is to believe, general contractors and customers do occasionally lie about the cheque having been mailed out!