Ever been stiffed?
Few things make your blood boil that hot, and we’ve all been there.
You know how it unfolds. This fall you’ll close a customer’s pool when they’re not home, and they won’t pay you. Or you’ll finish building a pool on time so your client can have a big party – and you won’t see final payment. Or you’ll finish a craftsman-level sub-contracting job on a beautiful commercial installation, only to spend the next several months leaving voice mails for the contractor.
In every one of those instances you’ve got a powerful weapon in your hip pocket: the Mechanic’s Lien.
First, the Good News
It’s based upon laws going back to the Roman Empire, and it’s tough enough to match the boiling level of your frustration.
Essentially it allows you to place a “lien” against the property that your work improved. To do that, you go to the county recorder’s office and file a “claim of mechanic’s lien.” That starts a clock. Depending on which state the property is in, the property owner has anywhere from sixty days to six months to settle things with you.
If that doesn’t happen, then, before the claim expires, you have to go to the court and file an action to enforce the lien. That starts the final phase. Once the court bores through its process, it can seize the property, auction it off, and pay you.
That sounds like sweet relief, doesn’t it? It’s nice to know that there is no question the state is completely on your side. You got stiffed; the law makes it right.
Now the Not So Good News
Or tries to.
In the real world these conflicts can become terribly tangled.
In the case of the homeowner who didn’t pay you after you closed his pool, when he receives notice of your claim he can dispute it, insist that you did sub-standard work, and delay or confuse the process in a dozen ways.
The homeowner who didn’t pay you, despite getting his pool party on time, might choose to do nothing but wait. Why? Because the chances that you’ll go to court to file an action are exceedingly slim, and as soon as your claim expires, the whole issue is probably over.
And if you’re the sub-contractor leaving voice mails for the contractor, when you place a Mechanic’s Lien on the property, you’re essentially going after the wrong person. The property owner doesn’t owe you; the contractor does. You will almost certainly succeed in getting the property owner’s attention, but it may not be the type of attention you want.
And as you have doubtless surmised, this whole process can take a long time. How long depends upon your state’s laws, but even if you start the clock when the invoice is only thirty days overdue, you’re still looking at months to years before you get paid.
Of course, you’re also going to need to see it through, pay for legal counsel up-front and out-of-pocket, and you may even have to wear a monkey suit when you stand before the judge.
The law is tough, not time efficient.
An Ounce of Prevention
But Mechanic’s Lien laws really have two purposes.
First, the laws give you a last resort to use when you get stiffed, and the law is on your side.
And second, the law is so strong it helps prevent its own use.
It actually provides for a clear process that the vast majority of honest contractors and businesses follow. In complex projects, all parties involved will provide each other with “release of lien” documents or “lien waivers” as soon as they receive payment.
The Mechanic’s Lien hovers in the background as a universally understood threat, and the parties involved keep assuring each other that they won’t use it. Work, supplies and payment move efficiently and the releases serve to close engagements as securely as the signature on a check secures payment, finishing each part of the process with everyone in agreement.
And when it comes to making sure that bills are paid, process is everything.
When “Prevention” Makes You Look Weird
You could initiate a process by delivering releases right from the start.
You might provide your customer or contractor with a release of lien the very first time they pay you, letting them know that you are a serious businessperson and that you’re happy to acknowledge you have no legal grounds to seize their property.
But that’s a little strange.
Releases and waivers are usually provided amongst professionals as part of complex, long-term projects. A homeowner might find it odd to get one after he pays you to close his pool. It’s overkill, and it may make you look like you spend way too much time watching court dramas on television.
A Tasteful Pound of Cure
Generally speaking you want to treat every customer like royalty, and that means politely assuming that they will pay you as promised. When they do, you may not want to deliver a veiled threat in the form of a lien release.
Perhaps the better time to initiate your process is when the problem arises.
It’s critically important to understand when that happens. In our experience – with a wide range of contractors, businesses and entrepreneurs – the problem has firmly established itself by the time your invoice is thirty days overdue.
You must have a process to deal with that, because once it’s 120 days late, you have only a 1 in 3 chance of getting paid.
Your process should include follow-up calls and letters reminding your client that their payment is due. Quite often a single courteous phone call (without, obviously, mentioning a Mechanic’s Lien) is all you need.
But some clients require more work, and that work can be painfully time-consuming and psychologically draining. It can take you or a critical employee away from productive, forward-thinking work.
It also runs the risk of souring your relationship with your client, which might cost you their business and any business they might have sent your way.
Many of our clients who are NESPA members prefer to have a third party collect their outstanding receivables.
When your customer gets a call from a third party, he knows for certain that you’re serious about getting paid. That motivates him to solve the problem, because he knows it will escalate.
But since he’s not talking to you or your employee, he has no social stake in the conversation. It’s just business, and he can deal with it and save face at the same time.
And the next time you see him you don’t even need to mention it. If he brings it up you can even act surprised and brush it off: “Oh, that’s the process we use,” you could say, “It just kicks in automatically. Thanks for taking care of it.”
As Theodore Roosevelt famously said, “Speak softly, but carry a big stick.”
The Mechanic’s Lien isn’t your “big stick” – it’s too big. You’ve got it, but don’t even show it.
Your “big stick” is your process. In-house or third party, it can solve practically any payment delinquency problem that arises.