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,
I am struggling with a situation concerning joint checks and customers. One customer in particular has been getting projects that are a lot larger than their credit line. They need additional time to pay, but do not have the credit rating and credit line to support it. I have brought up joint checks to my sales rep but he is telling me I will “offend” the customer. How can I approach this situation?
Signed, Joint Check Jitters in Joplin
Dear Joint Jitters,
In a scene from the movie Forrest Gump, Tom Hanks’ character is sitting on the bench waiting for a bus and utters the line, “Life is like a box of chocolates, you never know what your gonna get.” Do you remember that line? Well, credit management is like that, but in my mind the line goes something like, “Life is not like a box of chocolates, it is like a plate of chilies. What you do today may burn your ass tomorrow.”
This applies to you, dear Joint jitters. Let’s say you don’t want to “offend” your customer and you let multiple projects go out the door without a joint check. Now, the customer is way over their credit line. I am going to assume if the joint check is offensive than the idea of securing lien rights is downright foul. You are flying completely, and expensively, blind.
Fast forward several months and your entrepreneurial, fast-growing customer isn’t paying on time – or perhaps they’re not paying at all. The account is not pretty and he tells you he can’t pay you because he is having trouble getting paid on one (or possibly all) of the projects. Add to that, you really didn’t do right by your customer either. Joint checks (and lien rights) help protect everyone on this adventure. Now you have no leverage to help either of you.
How is your hiney? Feeling the “burn” of not pushing harder to protect your company? Who is offended now? The customer can’t pay and you are reaching for something to settle your stomach while the Pepto Bismol song is playing nonstop in your head.
Since you asked about joint checks, I am going to try to stay focused there and avoid a lien rights tangent. A joint check gives you, the supplier, a direct relationship with the company cutting the checks. This gives you the direct relationship and ability to call the GC to find out exactly what (or who) the issue is.
A well crafted joint check agreement can get you paid and save the relationship with your customer. If you have no ability to collect through a joint check (and/or lien rights) then your only option is to continue to pursue your customer, by any (legal) means possible. There is no other option. Which usually means you can kiss that customer good-bye until you see them again in court.
I am well aware of the adage that “joint checks only work if they actually get written.” While that is true, there is a lot you can do to tip the scales in your favor. Make sure you have a well-written, thorough agreement. This does not mean it has to be a multi-page ordeal or read like you took a night class on how to write like an attorney. It means you hit the big bucket items:
- Have a limited power of attorney so you can sign off on behalf of your customer for this project.
- Don’t give up lien rights.
- Add a direct pay clause from GC to you (supplier) in case of dispute between GC and your customer.
Those are just a few, but you get the idea. You can Google, ask a credit buddy, or contact your attorney to get a joint check agreement that covers what you need. Just make sure whatever agreement you are committing to gives you some options, doesn’t give up rights, and doesn’t commit you to crazy things like warranty or indemnification obligation to a larger contact. Keep in mind what this document is supposed to do: give you a direct line to the check writer and get you paid.
Mechanics liens and joint checks get a bad rap. Used well, they can be a great way to help protect your company and your customer. Like most misunderstood things, education is the key. The reality is the only people that think joint checks are bad are GCs who are new to the business, those who are uneducated, or those truly out to do harm. As I have pointed out to many a customer, “What is worse, having someone think you have financial issues or making sure your money is as secure as possible with the support of your supplier?”
Just like that plate of chilies, the painful burn of lack of knowledge or courage lingers on long after the initial choking down.
