Slow pay, short pay, and no pay situations are harsh realities in the construction industry. They can be time-consuming, stressful, and cause serious issues to your business outside of the project itself.
And while payment complications can arise due to a negligent contractor, they can also be a sign of a serious cash flow problem that could affect the entire job.
Unfortunately, many contractors, subcontractors, and material suppliers experience payment issues, so it’s always best to stay alert for any warning signs.
Although being aware of payment red flags can give you a jump on things, the best way to protect your right to payment is by sending out a preliminary notice for every project.
Continue reading to learn about the most common payment issue red flags.
Construction Payment Red Flags
Below, we will detail some of the most common red flags that indicate ongoing payment issues within the project or complications that could potentially arise.
Another Contractor Files a Mechanics Lien
Mechanics liens are a serious tool for receiving due pay usually reserved as a last resort after a party has experienced nonpayment or incomplete payment for a construction contract.
If you learn that another contractor has filed a lien, it means that the payment issues have been occurring for an extended period. This could be due to two things: There is miscommunication in payment distribution or there are cash flow issues on the job.
GC Offers to Pay the Remaining Amount in Another Job
A strong indicator that a general contractor is having financial problems is if they propose paying you partially for your completed work and paying you the remainder on another job.
At first, this might seem like an enticing agreement since it would secure you more work. However, if the general contractor is unable to pay you your full amount in the current project, there is no guarantee that the issue won’t arise again later. This could lead to a continuous cycle of delayed or short pay that would ultimately impact your business’s ability to scale.
Property Owners Ask to Change Bid
A red flag that is not often perceived as an issue is when property owners ask for changes to bids — especially during home remodels. Sometimes homeowners will want to replace the flooring, countertops, etc., that had been previously agreed upon as the project begins to take shape.
While this might not seem like cause for alarm, property owners often don’t consider the possibility of added expenses given the changes. The result could be an argument between what the original bid was for versus how much it actually ended up costing.
Property Owners Request Itemized Receipts
Property owners sometimes ask for itemized receipts or material invoices after a price was agreed upon and the project is close to being complete. This should serve as a red flag because homeowners usually want to compare the receipts to ensure they are getting the lowest price on materials. However, they might not realize that materials are often marked up to include time and labor, not simply the raw materials.
If you don’t have a written fixed-price contract, this could quickly turn into a major problem with the property owner refusing to pay the difference between your receipts and what they deem a fair price.
Start a Pre Lien With CNS
Even when knowing the warning signs, you may not be able to avoid payment issues altogether. However, noticing the red flags can prepare you for the possibility of slow pay, short pay, or no pay and prompt you to take action by sending a preliminary notice.
At CNS, our preliminary notice services make the process simple so that you have more time to focus on other aspects of your business. By providing research and verification, our team helps ensure the accuracy of the information for your peace of mind. The result is knowing that your payment is protected even when working with customers you might not know well.
Prefer to call? You can reach us at 800-366-5660.
Disclaimer: CNS is not an attorney, and if you need legal advice, please contact one.