Work It Out
Dealers often refer to themselves as being in the relationship business equally or more so than supplying products and services. Yet those relationships, forged to instill loyalty and sustain sales and profitability, can be a double-edged sword when the local housing economy goes south. “Dealers are historically hesitant to rock the boat” for fear of endangering a loyal customer, says Richardson-Newton. “They’re afraid they can’t separate business from a personal relationship.”
That’s the tactic Kastein and his credit manager, Rich Czaplewski, have taken with their customers at Barker Lumber’s small-town locations. “We try to work with our past-due accounts to set up a plan to get paid and help both of us,” says Kastein. “We’re a partner in their businesses, and they in ours, and we want to protect that relationship.”
Though he’s savvy to all of his collection options, and takes advantage of a few when warranted, Czaplewski considers financial planning (as it relates to a customer’s account with Barker Lumber) part of the dealer’s full-service philosophy. “They might be going through tough times, but they are always a customer,” he says. “I don’t want them to be embarrassed or afraid to come in and buy a can of paint from us [just because their account is past due].”
To that end, he calls or meets with such customers at least three times a month; makes it easier for builders to finish projects by opening the yard on Sundays and slightly discounting some items; and allows them to set up monthly payment plans to work off their debt–all to help keep them both in business.
Lien on Them
Filing and eventually enforcing a mechanic’s lien on a customer’s project might seem like an extreme measure, but the simple act of notifying a builder or contractor that you intend to exercise that right and won’t release a lien until you get paid often inspires them to cut a check.
“Eighty percent of the time, you’ll get paid within 30 days of filing a notice,” says Greg Powelson, director of mechanic’s lien and bond services for the National Association of Credit Managers in Columbia, Md. He says this is because giving notice to a building owner that a supplier downstream hasn’t been paid could curtail his ability to sell or lease the property until the lien is released, thus inspiring payment.
As effective as they can prove to be, lien rights are not extended to everyone. The initial test is determining whether you, as a supplier of materials, even have the right to file a mechanic’s lien. “You must be within three tiers of the owner,” says Powelson, which is easy to determine when you’re selling lumber to the builder of a spec home, but less so if you’re supplying a framing sub working for a general contractor under contract to a construction manager on behalf of a building owner. Also, the material must remain as a permanent part of the building. Credit extended to rent out scaffolding or tools does not apply.
In addition, state statutes governing liens have their idiosyncrasies. Porter leverages liens to inspire payments on credit accounts, though state law limits the scope of that tactic to new, freestanding structures; even large-scale room additions don’t apply. “It makes me skeptical to extend credit to anything other than a new house that’s under contract,” he says.
Laws also dictate how long a dealer has to file notice and begin the enforcement process. In Oregon, a dealer has just eight days from delivering product to a jobsite to file a lien notice, while Rhode Island law gives lien holders 200 days to file notice, presumably so that the parties can work out payment before engaging that tactic.
Powelson encourages dealers to know their lien laws. He also advises them to proactively gather information that will aid the process whenever they extend credit to a contractor customer, including the complete chain of ownership and financial responsibility for the building, what was supplied when and where, and how much is owed on the account for that shipment.
