Contractors have tools to fix slow payment – but are afraid to use them

The results of the 2020 National Construction Payment Survey are in, and the data shows how badly the current construction payment process is working. That survey also shows that as many 40% of contractors don’t use the mechanics lien process to resolve slow payment problems on their projects. In an industry where cash flow is crucial to survival, why aren’t contractors using the tools that get them paid faster?

Lien-o-phobia: Why are contractors so afraid to fight slow payments?

One aspect of being a good tradesman is knowing how and when to use the necessary tools for a job.

The mechanics lien is a payment collection tool that every contractor should know when and how to use correctly. In almost state, sending preliminary notice is part of protecting a contractor’s right to file a mechanics lien claim. These documents provide enormous payment protection for contractors and material suppliers.

Yet, according to the survey, only about 30% of contractors regularly send preliminary notices. Of course, some states offer an easier process and more substantial protection than others. But even where they aren’t required required, preliminary notices are still shown to help speed up contractor payments.

Using your tools: 3 steps for contractors to cure slow payment

Many contractors don’t get paid on time because they have what I like to call lien-o-phobia: an aversion to filing payment claims even when you haven’t been paid.

Luckily, there is a 3-step process that cures most cases of this common contractor ailment.

Step 1. Review the requirements and deadlines for preliminary notices and mechanics liens for your specific state. Choose your state on this map to view lien rules and requirements.

Step 2. Download notice & lien forms to your computer.
Get free preliminary notice forms for every state here.
And get free mechanics lien forms for every state here.

Step 3. Immediately start submitting prelims on every project, following the state requirements.

Just those three steps alone are often enough to repair a contractor’s slow payment problem. Of course, some payment delays may get to the point where you need to send a notice of intent (NOI) or file a mechanics lien. But because you’ve taken the first step to protecting your lien rights, you’ll be protected and able to follow through.

Debunking common mechanics lien myths

Even though the cure for slow payment is readily available and proven to work, many contractors still refuse treatment. Two common myths are the main reasons why contractors don’t adopt a mechanics lien policy.

Myth 1: Protecting my lien rights will affect my business relationships.

In the survey, 1 in 3 contractors said they don’t file liens because they’re afraid they’ll lose a customer.

I have never understood this mindset. By following your state’s lien process, you are complying with state law. Most people and companies would prefer to work with a law-abiding individual or business, as it means fewer potential problems down the road for everyone involved in the project.

Regular use of preliminary notices actually improves communication with your customers.

Business is business. Contractors have to be diligent in protecting their cash flow – and their employees – at all times. Liens don’t have to affect business relationships in a negative way. Regular use of prelims actually improves communication with your customers, and provides the most effective defense against late or non-payment issues on a project.

If a customer gets upset when you protect your future receivables, what does that say about his/her company?

For a property owner or GC that plans to pay you on time, then the prelim will not have an adverse effect at all.

An owner or contractor who doesn’t plan on paying on time – or at all – will not be happy to see your preliminary notice. Why are you so concerned about what a non-paying customer thinks?