Collecting Construction Debt
Collecting construction debt can be a challenging feat. Thankfully, there are tried and true processes as well as experts to guide the way.
Organizing Your Paperwork
Many debts are due to unresolved disputes. Therefore, step one in collecting a debt is creating a solid defense of the case for making full payment as billed. In the construction industry, this includes making sure that your administrative house is in order. If you are attempting to collect a debt in the construction industry be sure to compile all contracts, invoices, change orders, records of communications, purchase orders, receipts, and other documents that support your case before you make it.
Contacting legal counsel at an early stage in the collections process could prove useful. Doing so can give creditors a clear picture of the road ahead based on the contract signed and help plan out a winning collections strategy. For example, the strategy used in managing the collections effort may depend on whether the terms of the contract are “pay when paid” or “pay if paid”. An experienced Florida construction attorney can advise on the difference and how these different payment terms can affect the outcome of a collection effort.
After sending an invoice, a call to the debtor’s accounts payable department is in order to assure that they have received the bill. At this time, the creditor can ask if they intend to make payment in full and, if so, when. If the bill has been overlooked or misplaced then this is an excellent opportunity to find that out. In the case of a simple oversight or misplacement, the creditor can follow up with a new copy of the invoice right after the call.
However, if the invoice was received and the debtor is refusing to pay, they may give a number of reasons for their refusal. This may include temporarily withholding payment contingent on their being paid by the property owner or general contractor. It may also be that they are disputing aspects of the invoice.
In the case of a dispute, then the phone call can be followed up by an in-person or virtual meeting to resolve the dispute. In the case of waiting until payment is received, the creditor can determine their rights and obligations by discussing their options with an experienced construction attorney. Depending on the terms of the contract, the creditor may be advised to wait for payment or take further action.
Periodic letters to collect a debt serve the dual purpose of both informing the debtor of the amount due or past due as well as creating a record that the debtor was informed on multiple occasions of their obligation to pay.
For best results, a creditor can outsource this activity to a Florida law firm with experience in the practice areas of collections and construction. Using a law firm to solicit a debtor has the following advantages:
- The lawyer’s letterhead carries gravitas
- The involvement of a lawyer shows the debtor that the creditor has escalated the case
- Lawyers can report the delinquent debtor to the credit agencies
- Lawyers can request skip-trace reports to find elusive debtors
- Lawyers can further escalate the case, taking legal action to collect the debt
“Contacting legal counsel at an early stage in the collections process could prove useful.”
Filing a Mechanic’s Lien
If efforts to collect the debt through negotiation, calls and letters fail, an experienced Florida construction attorney can advise the creditor when and how to file a mechanics lien on the property with a view to collecting the debt. The act of filing a mechanic’s lien is highly effective in the collection of construction debts in the State of Florida. In over 50% of cases where liens are filed against a property, the cases are resolved within a quarter year of the filing.
If you are looking to file a mechanic’s lien, beware of using mechanic’s liens downloaded for free or at minimal cost from the Internet. The language in these documents may not be right for your specific case. Rely on the advice of an experienced Florida construction attorney to draft and review your lien document to ensure maximum effectiveness and compliance.
Pre-Litigation Collections Efforts
Now that a mechanic’s lien has been placed on the property it can be useful to communicate with all of the involved parties to build a consensus that the debt should be paid. If the debtor, for example, is the prime contractor then it makes strategic sense to contact the property owner and lender to let them know of your case. This communication can be sensitive and either help or harm the creditor’s case depending on how it is conducted. It is advised that creditors speak to their attorney before contacting any parties in the construction working group at this sensitive time in their case.
In rare cases, filing a mechanic’s lien and following up diligently with all parties involved still does not result in payment. In such cases, creditors may escalate the case further by instructing their attorney to litigate. This means attempting to use the courts to foreclose upon the property on which the mechanic’s lien was placed. In many cases, it is preferable to use mediation first since the cost is often lower and many mediators help to resolve issues before they reach the ultimate escalation of litigation. If mediation also fails, then many legal experts would advise arbitration rather than litigation for construction disputes. This is because there are arbitration boards that specialize in construction issues and the parties are more likely to have the case judged by experts who have a background in construction and understand the nuances of the industry.
An experienced construction attorney can advise creditors of their options when it comes to taking legal action in a court or via arbitration.
South Florida Law
Collecting a debt in the construction industry can be a mammoth task fraught with liability and full of heavily regulated processes. Be sure not to go it alone. Construction professionals can rely on the experienced construction and collections attorneys of South Florida Law to draft and deliver notices, advise on processes, mediate, litigate and in many cases to ultimately collect the debt. We are a boutique-sized law firm with big law firm capabilities, able to provide our clients with both attention to detail and the resources needed to overcome challenges. Are you a construction company decision-maker looking for a legal partner? If so, reach out to us today at (954) 900-8885 or via our contact form.