Four Ways to Ensure Payment on Your Supply Contract

If you are a high-volume material supplier, you never want to allow customers to fall behind on their invoices or, even worse, find yourself without recourse against that unscrupulous contractor who makes no effort to catch up on its invoices, but instead attempts to “ride off into the sunset.”

Here are five tips to avoid sizeable, long term defaults on accounts receivable:

  1.  Have a signed credit agreement with every customer.   Even if a large up-front payment is being offered, this may not be worth the hassle of tracking down the unpaid balance for supplies delivered to a customer with whom you have not entered into a credit agreement.   This is especially true with small “D/B/A’s” that could become unreliable in terms of prompt payment after even a brief downturn in business, or after one bad job.   Even if you are able to get a response from these contractors, you will unlikely be able to collect attorney’s fees or pre-judgment interest on any future suit without a suitable credit agreement.
  2. Send a formal invoice noting any accrued interest or fees at least once every 30 days.   A common tactic of any debtor is to rely on informal conversations or notes to somehow create a dispute over the amount really owed by them.   Don’t fall for this trap — make any outstanding balance and its calculation clear, consistent and easily to understand.
  3. Keep a copy of the last check tendered by every customer.  Failing to do so may seriously impede your ability to collect partial or full payment in the future.   If a customer’s current bank account number is available, we are often able to file a suit and immediately seek a Court Order attaching any money still held in the debtor’s known account(s).     The customer’s bank is served with the attachment, and any monies are frozen before the debtor can withdraw them.   If the indebted contractor does not have any other substantial assets, (property, vehicles) and is not owed money from any large project, then there are few options available to your supply company but to wait for the outstanding balance to trickle in over the course of months or years.
  4. File a Timely Notice of Identification in Order to Preserve Full Mechanic’s Lien Rights, or the proper notices if  you are supplying material on a public project.    See our December 2012 Article, “Conducting Your Year-End Construction Review,” for basic information on the timely filing of mechanic’s liens.