Common Collection Mistakes and Pitfalls
On March 27, 2008
By Scott Wolfe Jr
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This article is reproduced with permission from Wolfe Law Group, who originally published the article on its Construction Law Blog. The article discusses some of the common mistakes encountered when attempting to collect on a non-paying construction project. Liening, when stripped to its core, is simply a collection practice. A lot of Wolfe Law Group’s analysis that relates to collections in general, also relates to the specific device of construction liens. Therefore, we have chosen to share this information here.
Taking a reactive approach to collections instead of a proactive approach
Sometimes, unfortunately, the best collection procedures and attorneys on earth cannot fix a collections problem. An insolvent company who owes you $100,000.00 may owe you that amount forever.
Good collection procedures, therefore, begin before you are owed any amount of money; they begin at the time of contracting.
“An ounce of prevention is worth a pound of cure” rings true for those seeking to avoid a high receivables account. Starting with a good contract and following through with smart project management can help keep your uncollected accounts low.
Common contract provisions that may help avoid a collection scenario is discussed in a related blog post at:
Getting “Too Deep”
The worst collection problems are usually the most avoidable. Frequently, a construction company will continue dumping materials and resources into a project without compensation.
It’s important to reject the urge to perform your services upon a “promise” to pay. These promises are all too common between contractors, and in most cases, are all too empty as well.
Learn to notice cues from your prime contractors or customers that money is tight, and react by demanding exactly what you’re entitled to: payment. You may fear that the paying party will seek someone else to perform the work, but not only are they likely contractually restricted from doing this, but the substituted company will certainly expect payment as well.
Being Unprepared for a Non-Paying Customer
The longer an account goes unpaid, the less likely you’ll ever collect. One of the biggest mistakes you can make when faced with an overdue account, therefore, is to delay your attempts to collect.
It’s easy to put off attempts to collect when you’re not prepared. However, with a collection procedure in place, you can start collecting easily and automatically as soon as an account becomes overdue.
Collection procedures will keep you proactive, consistent and more successful at collecting on unpaid accounts.
Disorganization
Finally, the most common and avoidable collections mistake is being disorganized, and specifically being incapable to prove what you are owed.
As soon as an account goes into collections, it will go into dispute. The paying party will disagree with the amount of work performed, the quality of the work, its scope, the project’s change orders, etc.
In construction as you likely know, there’s no such thing as a perfect project, and so it’s not difficult for an adversary in collections to dispute the quality of your work because of paint chips or n incorrect doorknob.
Organization and a detailed record of the work you performed will help you avoid these time-consuming and expensive arguments. If you have photographs, time-sheets, job logs, etc., you’ll have the evidence necessary to combat these arguments and keep your overdue account from turning into a settled account.
About the Author: Scott Wolfe Jr
Scott Wolfe, Jr. obtained his J.D. degree from Loyola University of New Orleans, and his B.A. from Southern Methodist University in Dallas, TX. In 2006, 2007, 2008 and 2009, Scott was recognized as a Leader in Law by CityBusiness Magazine. The son and grandson of general contractors, Scott is a construction litigator in the Pacific Northwest, and the founding member of the bi-coastal law firm, Wolfe Law Group. Scott is also the founder and CEO of Express Lien, Inc., a legal document preparation service for contractors. In 2008, City Business Magazine recognized Scott as one of its Innovators of the Year for the Express Lien concept. As an entrepreneur himself, Scott has a strong background in business and commercial transactions and laws. He focuses his practice on the legal issues facing the construction industry, and has represented clients in multi-million dollar construction disputes in litigation and alternative dispute resolution proceedings. Scott is a LEED AP.
[...] This Means In previous posts (here, here and here), we’ve written about some mistakes contractors make when collecting on [...]