The Tale of Two Rivals: Sales & Credit
If you are a credit professional, you have likely worked with sales folks who can’t seem to get you the information you need – despite how loudly and persistently you ask.
If you are a sales professional, you have likely worked with credit folks who seem to never have enough details. No matter how much you give, they are always harping for better information.
When the credit department wants to implement a new process, a mechanic’s lien process, for example, there is almost always one stumbling block: “How am I going to get sales on board with this?” (Sales, I’m sorry, but I don’t know how you feel, as I, too, am a credit professional and can sympathize with credit departments a bit more easily.)
This week, we shared an article by Walter Cupkovic and Jack Parrino (“authors”), Construction Due Diligence: Sooner is Always Better than Later. This article resonated with me for two reasons, the first reason comes in the first sentence of the second paragraph.
“When a contractor, subcontractor, or material supplier ‘sells’ a job, it is selling three things — ‘labor, materials, and credit.’”
YES! It’s brilliant and exactly how it works (or should work) in the construction industry. It’s not just furnishing materials and labor, and it’s not just extending credit. It’s both–working as a team.
Next, the authors acknowledge what I consider the second most resonant point of the article — that even a good customer can’t guarantee timely payment on a construction project.
“While credit due diligence is an important factor, there is no guarantee that a particular construction project will be successful or that otherwise having a ’good customer will’ result in payment in full. Let’s face it, contractors, subcontractors, and material suppliers sell to and/or work with many qualified contractors and owners but still find themselves in the middle of a troubled project, whether as a result of lack of additional financing to complete, a bankruptcy within the tier of contractors, or some other circumstance.”
Again, may I shout “YES!”?
Determining the credit worthiness of your customer is more than bank statements and credit reports. Credit worthiness is not simply concluding, “Well, they’ve been a good customer for over 30 years.”
Determining true credit worthiness is about understanding the risks associated with a particular project and that lie within the contractual chain; it’s about knowing what monies may be tied up in other projects throughout the state and country.
This is why additional tools like LienFinder, Bankruptcy Monitoring & Corporate Monitoring, are so incredibly valuable! A resource like LienFinder can provide you with a broader picture of the parties within your ladder of supply.
It’s easier for me to show you the value of this tool through an actual example pulled from LienFinder for one of our clients.
Warning: Since January, Classic Homes is the owner and/or GC on mechanic’s lien filings with claims totaling $661,767.
NCS Recommendation: You currently have outstanding claims of $462,185.70 on 6 projects that Classic Homes is a part of (Classic is listed as Owner and/or GC). It does not appear the liens are filed on any projects you are directly supplying to, however, keep a close eye on current projects & any project going forward. Ensure your customer continues to pay you timely and in the event payment stalls, proceed with the filing of a mechanic’s lien.
This matters! We know an ol’ saying which seems to thrive in the construction industry: robbing Peter to pay Paul. It is quite possible that this NCS customer will never be impacted by the information above, but if history is any indication of what’s to come…you can never have too much information.
The mechanic’s lien process is an awesome security afforded to those furnishing to construction projects. Just remember, mechanic’s liens aren’t reported to credit bureaus and mechanic’s liens aren’t reported to financial institutions. The credit worthiness of your customer may appear immaculate, per the credit report you pulled–but what happens when hundreds of thousands of dollars are tied up in ongoing projects?