Gregory Powelson kicked off his session with a question: “Does anyone have problems collecting money?”
Powelson is Director of the National Association of Credit Management’s (NACM) Mechanic’s Lien and Bond Service (MLBS), headquartered in Columbia, Md. He writes and produces the MLBS Lien Navigator, the online guide to serving notices and filing liens and bonds in all 50 states and Canada.
He said with a lagging economy, the topic of collections is certainly timely. “How much do these write-off things hurt?” Powelson asked, noting that with a profit margin of 3 percent, it would take $433,334 in sales to cover a $13,000 loss.
Construction credit is unique, stated Powelson, and the contractor is in a precarious position. “If anything bad happens, who doesn’t get paid?” he asked. “You!”
“How well are you doing your job on the backside?” he asked, noting the three key components to consider were (1) credit management (front side activity), (2) collection activity (back side activity), and (3) security (notice, lien and bond consistency).
He asked, “How do you measure up?”
Powelson was a dynamic speaker, mixing facts with personal stories to create a powerful message regarding the value of collateralizing receivables. He urged attendees to consider using credit applications and job information sheets. “Put yourself in a position to be able to collect,” he said. “Protect your rights and make sure you get paid.”
He said the other key is defining terms and conditions. “What are your terms?” he asked. “You’ve got to lock in your terms and conditions.”
He said a well-written credit application will help you get paid. “The credit application contains information that will be very important in the event of a default,” he said. “If you know where a customer works or banks, for example, you may be able to file garnishments after obtaining a judgment. It is much easier to get this type of information from your customer while you are still friends.”
Construction credit requires extra due diligence, noted Powelson. “The ladder of supply must be fully investigated,” he said. “The construction-oriented environment is unique.”
Powelson said to make sure change orders are reviewed. “Review purchase orders or subcontracts,” he said. “It is definitely a fight worth fighting.”
He also stressed that job invoicing is important. “Invoice as soon as possible,” he said. “You’ve got to do it correctly.”
In a tough economy, mechanic’s liens can be extremely important, Powelson noted.
“It’s an extremely powerful tool based on who you sell to,” he said. “It’s the squeaky wheel that gets the grease. There’s a variety of things you can do to collect money.”