Every business wants to make more money, but finding more business can be difficult. For construction industry participants that haven’t created and fully implemented a thorough lien policy and associated payment funnel, expanding the business may be easier than expected.
The common view of lien or credit policies is that they are restrictive policies — that they limit business opportunities by placing strict restrictions on the parties that qualify for credit, and thus, that the way to grow a business is to forego this type of policy. However, the reality is that a proper lien policy enables companies to pursue business and customers that otherwise would not likely qualify.
Far from being the restriction on business that they are sometimes viewed as, lien policies can be a sales department’s best friend. The ability to go after accounts and customers that would otherwise be a too-risky endeavor is a benefit to the sales team, and to a business’s bottom line. By ensuring that every extension of labor or materials on credit is secured by an interest in the improved property itself, a business can take on more accounts. In this circumstance, the circumstance that occurs when a complete lien policy and associated payment funnel is followed, payment is virtually guaranteed, regardless of the potential customer’s credit risk.
In order to accomplish this result, the credit policy should follow several successive steps: protect, monitor, warn, secure and enforce. When used properly, and in a systematic manner, these steps can reinvent a construction industry participant’s ability to proactively seek out new business. Every project a construction industry participant is involved with should be “protected” by sending a preliminary notice to retain the right to file a future lien, and to provide visibility, but that does not mean liens are required for most projects. The ability to file a lien (remaining in a secured position) is key, not necessarily the lien itself.
Only a small portion of projects and invoices ever reach the “secure,” or lien filing, stage of a successful lien policy. In fact, when the number of projects receiving preliminary notices increases, the number of liens that are eventually required goes way down.
In a relatively recent case study, a medium-sized construction industry participant was able to increase revenue significantly, as well as decrease uncollectible account percentages. That’s a pretty good double-benefit. And this was all accomplished by instituting a lien policy and sticking to it. Instead of thinking that a credit policy or a strong lien policy is restrictive, hurts business and relies on filing a bunch of liens, it’s time for construction companies to realize they can pursue more business and rarely file actual liens by protecting their right to payment on every project. Staying secure is the key to expanding construction businesses.