Building Strong Payment Pipelines in Construction

As the U.S. commercial and residential construction industry continues to grow, a key piece in keeping the market healthy is ensuring all parties are paid for services rendered. Protecting those payments starts long before anyone breaks ground.

The construction industry in the United States continues to grow at a solid clip. According to a report from Research and Markets, the U.S. construction industry is forecast to grow by 1.8 percent in 2021 and 3.7 percent in 2022, despite supply chain constraints and an economy in recovery from the COVID-19 pandemic. The residential construction market in particular has done well during this time, posting double-digit growth fueled in part by factors including rising disposable income, relatively low interest rates and increased access to credit.

Despite healthy growth numbers, the construction industry remains plagued by lack of payment. A subcontractor completes a job and doesn’t see a dime. A homeowner who has paid their general contractor finds themselves facing a lawsuit or lien from a materials supplier who never got paid for their part of the project. These situations are all too common – and completely avoidable. It is crucial to establish the right pipeline for payments along the way, and in the unfortunate event of non-payment, a way to collect what you’re owed. It’s best to start at the beginning, and with a partner like Corporate Collections International (CCI) that specializes in serving the construction industry.

Subhead: How GCs Get Paid

How do general contractors and related parties get paid? At the beginning of a construction project, a material supplier or contractor sends a “pre lien,” also called a “preliminary lien notice” to the property owner, construction lender, and general contractor. The pre lien is document that notifies the client of your right to collect unpaid costs on the project and protects your right to file a mechanics lien should the customer fail to pay. These can be helpful to general contractors in tracking who’s working on a given project and how much they expect to be paid. Subcontractors have also indicated they seem to get paid faster when they send pre liens vs when they don’t. Pre liens are regulated at the state level, and each state has their own requirements for filing – so it is important to understand the differences at the local level.

CCI has managed the preliminary lien process for clients in the Southwest since 1985, following each state’s respective guidance regarding lien notice issuance and helping the construction industry manage its project payment process.

Subhead: On the Money Trail

There are also instances where the lien process does not work out – and a client is not paying. If the lien process doesn’t work, CCI manages the collection item. As a general rule of thumb, most parties are on a 30-day net payment, as the standard. So, if they get to 90 or 120 days past due, or older, it becomes a collection case. As an agency that specializes in the contingency collections related to the construction industry, CCI has the expertise to enforce your lien rights and secure payment for your job.