Credit guru Thea Dudley has spent more than 30 years in LBM credit management. Now she’s here to answer your credit and collection questions. Got a question for her mailbag? Contact Thea at theadudley@charter.net
Dear Thea,
How do you deal with commercial accounts holding payments and retainage by using the “we will pay you when we get paid” statement? I have a retainage balance going back over 120 days with one account and the project has been completed (they even held an open house a month ago for the place). How long should you wait to file liens on the subcontractor terms and agreement if nothing is said in the contract about when total retainage is due?
Signed, Agitated in Alaska
Dear Agitated,
I understand that patience is a considered a virtue and good things come to those who wait. I am good at neither when it comes to someone breaking our deal and acting cavalier. Since lien laws are time-sensitive I tend to err on the side of sooner rather than later. I can always remove the lien; I cannot get the time (or lien rights) back that I have lost.
You mentioned you had terms and agreement with the sub, so I am assuming you had an individual contract for this job. If nothing was specifically stated in the T&A regarding retainage, then I count it as payment as usual. I am hoping you did not sign a full and final lien waiver. NEVER give those unless you have every dime and the payment has cleared.
If you did not sign a full and final, then my question is why haven’t you liened the project? If the debtor can’t or won’t give you a date of payment or the date is completely unrealistic, it is time to start giving notice. I recommend starting this fun fest by informing your customer (the debtor) that you intend to lien the project by a certain date unless you are paid what is owed. Making one additional call to the property owner prior to filing that lien to inform them you have not been paid in full and your work is completed can save a lot of money and time. Nothing stirs the payment pot like telling the property owner they are about to get a surprise gift in the form of a lien.
Be forewarned: This is not met with rainbows, rosebuds, and an outpouring of love. It usually gets you an earful and a challenge to “go ahead and try it.” It does however, get communication and usually payment going – sometimes before the lien, sometimes after.
Selling on open account and selling on contract T&A carries some variances. Your open account T&C should govern. If you are going to sell on contract, make sure you read the contract before agreeing and understand and address the details such as payment terms, retention, delays, etc., up front. As a material supplier unless specifically agreed to upfront, the “pay when paid” is off the table. Did I hold 10% of the product? Then get your poop in a group and get the payment made. There really is no justification for holding retainage on a material supplier. If they are material defects or warranty issues get those addressed and keep the project moving.
States vary on what the retention laws are and how long money can be held. 10% held for a length of time equivalent to waiting for your kids to leave for college used to be the norm. That is not the case now. Check out the publication “Retainage Laws in the 50 States 2016” by the Foundation of the American Subcontractors Association. This is a great resource on the subject.
Are you continuing to sell this customer for other jobs even though this one is past due? If you are, why? Why are you continuing to sell to this customer when they are past due with no estimation or seeming care as to when they are going to pay you? We are back to my favorite subject: Relationships.
How is this a good relationship if it is one-sided? If only one of you has skin in the game, then it is more of an abusive relationship than a partnership. If that is the case, then shut down any future shipments and lien the property. Once you get the retainage issue resolved, you and your customer can decide how you want to proceed in the relationship.
Relationships take work and have give and take. If you are doing all the giving and getting nothing but extra work in the form of unprofitable sales (money isn’t free; it costs to carry someone’s debt) – is the business really worth retaining?
