How the mechanics lien can clean up your accounts aging report
By Scott Wolfe

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If you're a credit or accounting professional in the construction industry, the accounts receivable aging report is a familiar document. You're likely to pull this report at least once per month (or you should) and watch all of your troubled accounts migrate from current to 30-60 days past due to the dreaded 90-plus days overdue column.

INDUSTRY PULSE

Which is more effective for overdue payments?
  • 1. Notice of intent to lien
  • 2. Mechanics lien

You know it, and anyone with collections experience will confirm it: Once a debt is in the 90-plus day column, it's nearly doomed. So, what can you do to prevent your debts from getting too dusty, and what can you do to stop collecting so many write-offs?

The answer is in your mechanics lien rights. You may not be properly leveraging these rights. This article discusses some best practices.

1. Be Diligent About Sending A Warning Notice At 30 Days

Whenever an account is overdue, it's a great practice to send a reminder notice, or perhaps even make a reminder telephone call. Simply forgetting about or losing an invoice is the biggest reason for late payments. Reminder phone calls, emails and notices go a long way to avoid payment getting lost to disorganization.

Sometimes, however, that isn't enough. At that point, your customers are likely not paying because they are prioritizing debts above yours. Your task is to get the customer to place more priority on your debt. How?

The mechanics lien can be a scary threat, and instead of sending your run-of-the-mill demand letter requesting payment within a certain period, those in the construction industry find a lot of success in sending a formal "notice of intent to lien" document. These are glorified demands, but are highly effective. In fact, we did a survey on these documents and found that they produce payment in over 47 percent of deliveries — and within just 20 days of delivery.

The notice of intent to lien document is cheap and easy to send. It's worth doing and will help prevent accounts from getting too overdue.

2. File A Mechanics Lien On Overdue Accounts

The reminder calls will reduce your default accounts, and the notice of intent to lien will reduce it further. Nevertheless, some default accounts will persist and continue to age on your A/R report. It's important that you take a proactive step on these accounts to prevent them from heading into the 90-plus column abyss.

That proactive step is to file a mechanics lien claim.

Like the notice of intent to lien demand, a mechanics lien claim is highly effective at getting companies paid. In fact, in a survey of lien filings, these claims were actually more effective than the notice of intent, with over 64 percent of lien filings getting paid within 90 days without the need for any further legal action.

Even more lien claims were paid after the 90-day period. Mechanics liens are effective at getting your company paid because they push a lot of buttons with your customer and others on the project, and this lubricates the payment process to get money to you fast.

Conclusion

Every company deals with aging receivables, but it's no use to just pull the report and fret about the default accounts. You can make a simple change and reduce the default accounts on your report dramatically.

What if, in just 60 days, you could reduce your default accounts by 47 percent by merely a notice of intent to lien? Then, for those accounts leftover, reduce them by another 64 percent with a simple mechanics lien filing? The impact to your bottom line would be drastic and all for a minimal investment.

Scott Wolfe is the CEO of Wolfe Law and founder of zlien.com, a resource that helps contractors receive payment and manage financial risk. An attorney in six states, Scott is also the author of The Lien and Credit Journal, which zeros in on credit management. You can connect with him via Twitter, LinkedIn and Google+.