Review Payment Terms.
You should always check a client’s payment terms, which should be spelled out clearly in their contract. And you should be very selective in extending 30-day payment terms, also known as business credit. Always check a client’s business credit when extending payment terms.
One thing you should also be on the lookout for are “pay when paid” clauses. Many GCs will insist on paying you only if and when they get paid by their customer. You should never accept these terms since there is a chance you won’t get paid. The biggest risk with these clauses, although there are many, is that a GC won’t get paid because a subcontractor did not do their job correctly. This means you could end up not getting paid because someone else did a shoddy job.
Check Their Business Credit.
Checking your GC’s or commercial client’s business credit is always a good idea. As opposed to personal credit scores, which require written permission from the person, anyone can look up a business credit score for a company. The business credit report will give you an idea whether the client is a good risk or not. Most will indicate how good a payer they are and how much credit you should give them. Two of the best business credit services are Dun & Bradstreet (www.dnb.com/us) and Experian Business Credit (www.smartbusinessreports.com). Both services offer a variety of inexpensive reports that will help you determine the financial condition of your client. For larger projects, you should consider buying extensive reports from both services, as they have different sources of information and levels of accuracy.
Insist on Written Signoffs.
Whenever you complete a project segment (in a progress billing situation) or the project as a whole, always insist on getting a written signoff from your client. The written signoff should state that the client has reviewed the work, accepts, and will pay for it. Having a written signoff is one of the best ways to avoid payment problems in the future. Have an attorney prepare a simple one, and have your contracts require it.
Conclusion
Although there is no 100% guarantee that you will always get paid, there are many things that you can do proactively to increase your chances of getting paid. Read your contracts thoroughly, and make sure you understand them, check commercial credit where appropriate, use good signoffs, use good advisors, but above all else, use common sense!
About Commercial Capital, LLC
Commercial Capital offers factoring financing to construction subcontractors. For more information go to www.ccapital.net or call Marco Terry at 786-206-4722.
Note that this article is not intended to replace the advice of qualified attorneys or financial advisors. You should always seek qualified advice.
