How to Get Paid When All Else Fails
I am amazed at how many contractors never involve their customers in getting paid on time. For some that is an entirely new thought. Some call, harass, and even threaten insurance companies as if the carrier is their delinquent customer but they aren’t. The insurance company’s customer is their policyholder and that is the only person who holds any influence over them. The insurance company cares little about the contractor or their troubles. Getting the customer involved in getting you paid is one of the most important steps you can take in getting paid on time.
I have designed a 3-Month Coaching Plan, The Cash Flow Accelerator, for contractors who struggle with keeping enough cash on hand to handle the day-to-day financial needs of their business.
My Cash Flow Management System is a step-by-step process that implements a comprehensive cash flow management system to help you get your construction draw early in the claims process, and secure the final RCV payment quickly following completion of the job. The system also helps you squash excess spending, it provides a detailed guide to navigating the mortgage company maze, and puts in place other mechanisms and systems to insure the most control over cash management possible. A Cash Flow Management System that really works for you could change your life and revolutionize your business.
I regularly speak with contractors who deal daily with excessive and delinquent charges that are delayed beyond anything reasonable or acceptable. One contractor was owed $60,000 on a single claim that was over 90 days past due, and there are the countless number of contractors owed $2500 or more for over 60 days with no clear payday in sight. Imagine the difference it would make if that payment was in your bank rather than recorded as a line item on your Balance Sheet? This loss is tragic and life threatening to many businesses. You could be owed several hundreds of thousands of dollars in accounts receivable, and be forced out of business because you can’t meet payroll or pay your bills. The size of your AR provides NO relief with your creditors who, like you, want to be paid on time!
What we are talking about here is how and when to lien. A lien is a last resort to getting paid, but in an industry that offers few tools to leverage responsible payment practices, it is one you must occasionally use.
Now picture this scenario – the contractor has completed the job and is awaiting final payment. They wait – and wait – and wait. They call the adjuster who is hard to reach, and after several direct appeals to get paid the adjuster is no longer taking your calls. You email – and email – and email, but nothing seems to happen. Thirty days has turned into 45 days, then 60 days, and now you are beside yourself with anger and fear not knowing what else to do.
This contractor feels hopeless to do anything to speed the adjuster and carrier’s responses to their cries to “Get me paid!” The ugly truth is that the contractor is right – they are both hopeless and helpless to affect a positive response. There is nothing they can do to get the carrier to speedily pay for the services rendered. BUT if the insurance company’s policyholder called, highly motivated and urgently appealing on behalf of their contractor, there could be a faster turnaround.
Most contractors accept payment as a 30-day net due. Once the final invoice representing funds not yet received exceeds your 30-day net you have only one strong play to make – you have the right to place a lien against the repair property until payment is received.
Call your customer at this time and explain the lien laws of your state. In Colorado the law is a contractor has 120 days from the last day of work on site to file a lien. If a lien has not been filed before the deadline runs out the contractor forfeits the right to file later. In some states the time frame is 60 days so find out how long you have in your state to file. Explain to your customer that you have not been paid, remind them that by contract the obligation is theirs, and the only protection the law affords you for final payment is a lien against their property.
If you have not been paid within 45 days of job completion, you should let your customer know that you do not want to file the lien but you have no other options.
At this time the longer you wait the more you delay receiving your payment, and you have no assurance once the payment is overdue how long it may take for your payment to arrive.
No homeowner wants their property liened, and for many it may scare them. They may be overcome with irrational and unfounded fears because most homeowners don’t understand what a lien does and does not do – but they are certain they are afraid of it and don’t want it. I am not suggesting that we take advantage of this fear, but the lien is the only remedy short of filing a lawsuit you have available to speed receipt of your payment, and arguably the only means after all other efforts have failed to motivate a customer to ardently advocate for you.
Motivated by the fear of a lien many customers will become highly involved to try to get you paid – FAST! They will call the insurance company and demand they take care of you in order to avoid the lien. If, as you get closer to the lien limit for filing you have not been paid (45 days past due is reasonable) prepare the Notice of Intent to Lien and the Lien itself, and send it to your customer by Certified Mail and by regular postal service. Many US consumers have learned that Certified Mail is generally not good news and won’t even bother to pick it up from the Postal Service. Sending it through regular mail will insure they receive the Notice.
Most states require a Notice of Intent to Lien notifying the customer of the potential filing, and giving them time to cure the problem.
If the customer is unsuccessful in getting the carrier to pay within that period of the Notice (10 days in Colorado) you can file the Lien at the County Courthouse for a nominal fee. Get a copy of the filed Lien and send it to your customer for their records. Let them know you are sorry but you have no choice. Inform them that once you are paid you will file to have the Lien vacated. They will be committed to doing everything they can to get you paid as quickly as possible.
This may not solve every issue in terms of receiving final payment, but it will motivate both the insurance company and your customer to favorably resolve the matter as quickly as possible. If you don’t want adjusters blowing you off and customers ignoring your plea for payment you must include a Lien Process in your overall collections strategies and Cash Flow Management System. Insurance companies listen to highly motivated and deeply distressed customers calling to ask why they haven’t paid their contractor. Insurance companies will listen to them when they won’t listen to you!
One client contractor who was working hard to implement a full Cash Flow Management System told me that he followed my advice with 5 extremely delinquent payments.
He was afraid for himself over his depleted levels of cash, and was fearful he was quickly approaching a financial precipice. He said the Lien process “opened a hornet’s nest.” The customers were mad at him, but also angry at the insurance carrier. They agreed the contractor deserved to be paid promptly, they were surprised that so much time had lapsed since the job was completed and payment had not arrived, and they were really disappointed in their adjuster for their personal and persistent negligence. Just the kind of response you want to evoke – personal advocacy!
Adjusters were calling the client contractor out of anger, and when the contractor asked what he should do when facing such a delay over payment the adjuster replied, “Be patient!” Patience is the one thing this contractor had lost. He turned the argument around and said that instead of patience he demanded results. He was owed the money, he performed the service, the customer was pleased with the work and the adjuster was negligent for not paying his bill for no other reason than he just hadn’t made paying the contractor a priority. The contractor held his ground and soon one payment arrived, then another and another. He averted his cash flow crisis, his stress subsided, and he is back on track financially.
When an adjuster or carrier doesn’t care enough about you to act responsibly you need to have a remedy to bring about their accountability and your protection – the only way to do this when payments are unreasonably delayed is the Notice of Intent to Lien. Use it sparingly – but use it!
Reference: 3 Month Coaching Plan: The Cash Flow Accelerator – Blow the Lid of Your Cash Flow Chaos
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