Material Suppliers & Construction Payment

Material suppliers inhabit a tough spot in the construction payment landscape. A material supplier’s challenges to lien and bond claim compliance are numerous, and the financial risk is high. Since suppliers are at the bottom of the payment chain, there are many potential spots at which money could get stuck. This risk of nonpayment is even more detrimental to material suppliers because the ability to fully utilize the security provided by mechanics liens and bond claims is more burdensome on suppliers than on any other construction industry participant.

 

While mechanics lien laws and notice requirements are uniformly inconsistent throughout the country, the degree to which material suppliers get hit with the most stringent requirements is relatively constant. This is interesting but not completely unexpected, since material suppliers can often be owed substantial amounts of money, but not ever actually set foot on the project itself.

Despite, or perhaps even because of, the potential practical hurdles, material suppliers are positioned to benefit from a well-developed and thorough lien and notice policy and, just as importantly, from technology able to fully implement that policy.

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Why Material Suppliers Should Create a Thorough Lien and Notice Policy

The benefits to a comprehensive mechanics lien and notice policy are numerous, and have been discussed in many Construction Payment Blog Posts. The incentives for construction industry participants to always remain in a secured position when material (and/or labor) is extended on credit are huge: faster payment, virtually nonexistent write-offs, the ability to pursue more business, etc.

It’s a nearly universal requirement that material suppliers send preliminary notice on every project in order to remain in a secured position. While this can be burdensome in that the very large project volume of many material suppliers results in a large number of notices to send, it can also streamline the notice policy. If a preliminary notice is always required, there are fewer questions about what to do in the event a project has no required notice. Even on projects for which a preliminary notice may not be required, sending voluntary notices has been found to induce similar results. Visibility is key to getting paid on construction projects, and the identity of material suppliers (at the low end of the payment chain) may not be readily apparent to the parties ultimately in control of the money. Sending preliminary notice, whether required or not, provides that visibility.

Following a lien and notice policy results in substantial tangible benefits. As mentioned above, these benefits include lower DSOs, less write offs, and virtually complete payment security.

While some suppliers may have certain customers to, or specific categories of jobs on, which they do not want to send notice – the fact remains that the majority of a material supplier’s projects should and will receive notice. Since many material suppliers have a large volume of projects, this can result in many notices to be sent, many of which have differing requirements.

This is the realm of technology.

Technology Can Make It Happen

The challenges faced by material suppliers are all challenges that can be solved by the adoption of technology platforms. The things that make it challenging for suppliers to manage these complex security rights happen to be the exact same things at which technology platforms excel. The management of vast amounts of complex data, and applying specific actions to that data, is right in the wheelhouse of computer ability. By using a technology platform to manage and optimize notice and lien compliance, material suppliers can offload that burden while still retaining the benefits.

To learn more about how a technology platform can optimize your process, click below.

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