Service Area: Notice and Mechanic’s Lien Services

Business Bankruptcies Are Rising; Time to Protect Your A/R

Posted on May 2, 2025 by - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

The Bankruptcy Wave Isn’t Coming… It’s Already Here.

According to Epiq AACER and the American Bankruptcy Institute, commercial Chapter 11 filings in March 2025 jumped 20% over the previous year. The trend has continued into 2025, with key sectors like retail, construction, and healthcare feeling the pressure.

Why the increase? Inflation. Interest rates. Unstable supply chains. And yes, tariffs. Financial pressure is mounting, and when a business collapses, creditors often end up with nothing but unpaid invoices.

If you’re a supplier, lender, contractor, subcontractor, or equipment lessor, it’s time to take control. Let’s review what’s happening, what it means, and how tools like UCC filings and mechanic’s liens offered by NCS Credit, can help you get paid in the event your customer defaults on payment terms or files for bankruptcy protection.

Understand How Chapters 7 & 11 Bankruptcy Work

If your customer files for bankruptcy protection, here’s what you need to know:

Chapter 7: Liquidation

  • The company shuts down, and a court-appointed trustee sells off its assets.
  • Creditors with secured claims (like those with a properly filed UCC or lien) are paid first.
  • Unsecured creditors? Often left with nothing.

If you’re not secured, Chapter 7 can leave you out in the cold.

Chapter 11: Reorganization

  • The business continues operating while restructuring its debts.
  • Debtor proposes a plan to restructure and repay creditors over time.
  • Secured creditors have a much stronger position at the table.

Bottom line, whether it’s Chapter 7 or 11, secured creditors are in a better spot to get paid, and you become a secured creditor by filing UCCs and mechanic’s liens.

Did You Know: Receiving $0.98 on the dollar, secured creditors recovered 77% more than unsecured creditors in 2024 Chapter 11 bankruptcies.

Payout Priority in Bankruptcy Cases

The bankruptcy code is specific, detailed and, well…it’s long – but here is the basic payout priority:

Payout Priority in Chapter 11 Bankruptcy

  1. Secured Creditors (i.e. creditors who have a perfected security interest)
  2. Administrative Expenses (i.e. costs associated with filing & processing the bankruptcy)
  3. Unsecured Creditors (i.e. creditors without a security interest)

Why Business Bankruptcies Are Increasing

From late 2023 through 2025, business insolvencies have steadily increased. Here’s what’s driving it:

  • Inflation continues to shrink already-tight margins.
  • Interest rate hikes are making it more expensive to borrow and refinance.
  • Shifting consumer behavior is hammering retailers and service providers.
  • Slow payments in construction and manufacturing are causing ripple effects throughout the supply chain.
  • New tariffs on imported goods are increasing costs across multiple industries.

When one business can’t pay, others downstream feel the impact. If you’re extending credit, you’re carrying the risk.

Industries Under Pressure

Here’s where we’re seeing some of the fallout:

  • Healthcare: Hospitals and medical suppliers are struggling with reimbursement cuts and labor shortages.
  • Automotive: Parts suppliers are facing reduced EV demand, tariff pressures, and rising material costs.
  • Casual Dining: Rising labor and food costs are squeezing margins as customer traffic drops.
  • Retail: Several national chains have filed for bankruptcy amid online competition and falling in-store sales.

How Tools Like UCC Filings and Mechanic’s Liens Can Protect Your Payment Rights

Here’s the good news: you have legal tools to protect your payment rights.

File a UCC-1 Financing Statement

If you’re financing equipment, inventory, or receivables – or even just extending credit – file a UCC.

Why it matters:

  • Puts the world on notice you have a security interest.
  • Establishes your priority if your customer files for bankruptcy.
  • Helps you recover your collateral or proceeds from its sale.

Pro Tip: First to file = first in line. Don’t wait.

Secure Your Mechanic’s Lien Rights

If you provide labor, materials, or equipment to a construction project, mechanic’s liens are your best friend.

Why use them:

  • Gives you a legal claim against the improved property.
  • Puts pressure on owners and GCs to resolve payment issues.
  • Protects your position in and outside of bankruptcy.

Pro Tip: Lien rights are time-sensitive and vary by state. Know your deadlines and send preliminary notices when required.

Do Secured Creditors Really Get Paid?

Yes, secured creditors really do get paid. Although every bankruptcy plan is different, here’s a chart of recent bankruptcy exits, and the amount recovered by secured creditors versus the unsecured creditors.

In review of commercial bankruptcies with plans effective 01/01/2023 – 10/01/2024. On average, secured creditors recovered 96% of allowed claims and unsecured creditors recovered 5.4% of allowed claims.

A Little Paperwork Now Beats a Big Loss Later

Bankruptcy doesn’t just affect the debtor; it sends financial shockwaves through the entire supply chain. A little paperwork up front, like filing a UCC or securing mechanic’s lien rights, can be the difference between getting paid and writing off a loss.

By understanding and using tools like UCC filings and mechanic’s liens, you can better navigate the complexities of the current economic landscape.

We Are Your Credit Ally

Whether you’re filing UCCs or mechanic’s liens, from a single request to a robust full-service program, we are your Credit Ally. With unparalleled industry expertise, we understand the complexities of commercial credit. Let us manage your secured transactions and save you time and money. Contact us today to learn more!

Be proactive. Be secured. And most importantly: get paid for the work you do.

Lien Index Q1 2025

Posted on April 23, 2025 by - Lien Index

NCS Credit’s Lien Index Ends Q1 2025 at 55, Down 8% from Q4

Lien Index down 5 points to 55 from revised Q4 score of 60*. Mechanic’s Lien activity has declined, but is forecasted to increase in coming quarters.

National Mechanic’s Lien Activity

The Lien Index ended Q1 2025 at 55; an approximate 8% decline in activity from Q4 2024 and 17% decline compared to Q1 2024. This is the lowest the Index has been in the last two years, with Q2 2023 also coming in at 55.

Thus far, 2025 has been marred by uncertainty. Chapter 11 bankruptcies are up 20% over 2024, and tariffs are front of mind, while the stock market tries to find footing. Fortunately, lien activity did decline in Q1, some of which is attributed to the cyclical nature of construction projects.

Regional Mechanic’s Lien Activity

The South and Northeast led the country in lien activity in Q1, with the Northeast experiencing a 9% increase in liens over the previous quarter. Activity in the South did decline 7%, though remains well above 50, as slow payments continue.

Lien activity in the Midwest has steadily declined over the last 3 quarters, down 4% over Q4 2024.

Rounding out national activity, the West dropped significantly, coming in 14% lower than last quarter. However, there is an anticipated increase as communities begin rebuilding from the tragic wildfires.

States with Highest Lien Activity

The top 5 states for lien activity were (in order of volume): Texas, Florida, California, Nevada and New York.

Top 3 States by Region

  • West: California, Nevada, Colorado
  • Midwest: Iowa, Ohio, Michigan
  • South: Texas, Florida, Georgia
  • Northeast: New York, Massachusetts, New Jersey

Looking Forward

As we progress through 2025, payment challenges will remain a significant concern for businesses across the supply chain, affecting everyone from material suppliers to contractors. We do expect lien filings to increase as material prices are anticipated to skyrocket, straining open credit terms and pinching cash reserves.

Cash flow disruptions and delayed payments are expected to persist, placing considerable financial strain on companies. The situation is worsened by slow-paying clients and creditors facing their own financial difficulties. In addition, the uncertainty surrounding tariffs and the broader global economic climate is fueling further instability, amplifying unpredictability across the industry.

In today’s uncertain environment, it’s essential for businesses to take proactive steps to protect their financial interests. Mechanic’s liens and UCC filings offer valuable legal recourse in the event of non-payment. These safeguards provide a clear path to securing payment for your work, even in turbulent times. Act now to fortify your business against the challenges that lie ahead.

Industry Experts

The Architecture Billings Index (ABI) experienced another quarter of declining billings. “Clients are increasingly cautious about starting projects due to uncertainty over future trends in interest rates and building materials costs, as well as the potential for an economic slowdown,” said Kermit Baker, PhD, Hon. AIA, AIA Chief Economist. “Unfortunately, this softness in firm billings is likely to continue as indicators of future work remain weak, however, the average project backlog at firms stands at a reasonably healthy 6.5 months, offering a bit of a buffer if future project work continues to remain soft.”

Associated Builders and Contractors (ABC) reported its Backlog Indicator ended Q1 at 8.5 months, however, this was prior to the tariff announcement. “Backlog increased in March and contractors remained optimistic regarding the future, but this largely reflects contractor activity and sentiment prior to April 2, when the most consequential economic policy in several decades was announced,” said ABC Chief Economist Anirban Basu. “Approximately 80% of ABC contractors surveyed indicate that suppliers have notified them of tariff-related materials price increases, and nearly 20% of contractors surveyed had projects paused or interrupted because of tariffs during March,” said Basu. “These tariffs have already materially diminished the outlook for construction activity in 2025. Many businesses are poised to delay or even cancel planned capital investments given the current business environment and daily market convulsions. Conditions will likely deteriorate further if elevated tariff rates remain in place for any meaningful length of time.”

The Dodge Momentum Index grew 6% in January and 1% in February, but declined 7% in March. “Increased uncertainty around material prices and fiscal policies may have begun to factor into planning decisions throughout March,” stated Sarah Martin, Associate Director of Forecasting at Dodge Construction Network. “While planning data has weakened across most nonresidential sectors this month, activity remains considerably higher than year-ago levels and still suggests steady construction activity in mid-2026.”

Epiq Bankruptcy reported Chapter 11 filings were up 20% in March from previous year. Michael Hunter, Vice President of Epiq AACER, stated “The 20 percent rise in commercial Chapter 11 filings to 733 in March 2025, up from 611 last year, signals persistent economic pressure…Meanwhile, credit card delinquencies have hit a near 10-year high, driven by rising interest rates and consumer debt burdens.” Further, ABI Executive Director Amy Quackenboss said, “Inflation, elevated interest rates, tighter lending terms and geopolitical tensions are creating more challenges for distressed consumers and businesses looking to alleviate their growing debt loads.”

*Nationwide, recording offices manage a backlog of requests. The Index data is adjusted and revised accordingly.

Construction Litigation Attorney

Posted on February 19, 2025 by - Preliminary Notices & Construction Credit

When to Use an Attorney Who Specializes in Construction Litigation

Selecting the right attorney has a substantial impact on your ability to secure your receivables. There are many considerations when weighing your options.

Why is it important to use attorneys who are experts in construction litigation for construction collection cases?

Companies can’t afford to rely on attorneys that “dabble” in construction law. There is too much at stake and the laws are too complex. Make sure your attorneys are experts in construction litigation.

What are the advantages of having your construction attorney local to the project?

Mechanic’s lien and bond claim laws can vary drastically from state to state, so having an experienced attorney local to the project is a tremendous benefit.

A construction litigation attorney will know the laws specific to that state and may be in close proximity to the project and/or familiar with the parties involved.

What are the consequences if an attorney files a mechanic’s lien in a state where they are not licensed?

Courts have ruled against construction litigation attorneys who have prepared, signed, filed and pursued mechanic’s liens in a state where they are not licensed to practice law. As a result, any related filing might be ruled invalid.

Should I use a large attorney firm for my construction collection needs?

The presumption by many is that using a large law firm will somehow guarantee better results. This is not necessarily the case. Larger law firms often charge high hourly rates and assign your case to a less experienced associate attorney. Working with a small or mid-sized firm may actually provide your organization with more legal expertise and a better overall value.

When hiring an attorney on an hourly basis, does the hourly rate tell the whole story in terms of cost?

Although the hourly attorney rate is important, the expertise of your attorney and method of billing is critical. Below are some questions to ask when evaluating a construction collection attorney:

  • Do I have a trusted relationship with this firm and/or attorney?
  • Is the hourly rate competitive for the region? (i.e. Hourly attorney fees in New York, NY will be higher than in Des Moines, IA).
  • What is the firm’s methodology for billing?

Consistency is the key!

Payment Protection Rights for Los Angeles Wildfires

Posted on February 17, 2025 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

California Mechanic’s Lien and Bond Claim Rights: Rebuilding After the Wildfires

To say the Los Angeles wildfires were devastating is an understatement. Businesses and homes lost, and the recovery efforts have been and will be nothing short of massive. Amid the devastation, construction crews work tirelessly to rebuild, from restoring homes to reestablishing vital infrastructure.

But for many material suppliers, subcontractors, and contractors, the rebuilding process isn’t just about rebuilding, it’s about ensuring they’re paid for their materials and services. Unfortunately, in the rush to get things back to normal, payments can get delayed, overlooked, or simply ignored. This is why protecting your construction mechanic’s lien and bond claim rights is not just important, it’s essential.

Los Angeles Wildfire Recovery: Payment Protection and Infrastructure Rebuilding Rights

Devastating events, like fires, earthquakes, and floods, skyrocket the demand for contractors, materials, and services. Projects are pushed through quickly, sometimes without proper funding in place (i.e., the insurance claims & issues), which can lead to payment delays or even disputes that make getting paid harder than it should be. Mechanic’s liens and bond claims are designed to give subcontractors and material suppliers a way to protect their interests and ensure you’re compensated, even if the payment chain starts to break down.

While the details outlined in California mechanic’s lien and bond claim statutes are specific and require strict compliance, here’s an at-a-glance look at the steps and timeframes to protect construction mechanic’s lien and bond claim rights.

California Mechanic’s Lien (Private Construction Projects)

California Bond Claim (Public Construction Projects)

Rebuilding after Los Angeles Wildfires: How to Protect Your Mechanic’s Lien and Bond Claim Rights

  • Serve Preliminary Notices – Always. California statute is quite clear, you should serve a preliminary notice, upon all parties, within 20 days from first furnishing. (You can learn more about California’s 20 Day Preliminary Notice here.) If you’ve missed the deadline, send the notice as soon as possible – you could still protect future furnishings.
  • Keep Close Tabs on Deadlines. Make sure you understand the deadlines and file on time, or you may lose your right to file. Our team and technology are here to track and easily manage your mechanic’s lien and bond claim deadlines for you, but if you’d prefer to do it on your own, keep California’s statute link handy.
  • Monitor Invoices. Keep up with open invoices and subsequent payments. Be aware of delays and change orders. If payments start to slow, don’t wait, file your California mechanic’s lien or bond claim – just because the deadline is “30 days from Completion” does not mean you have to wait that long to file.
  • Document Everything. Good documentation is key when filing a construction mechanic’s lien or bond claim. Keep detailed records of contracts, invoices, communications, work completed, and any payment issues. Having this documentation on hand will make it easier to prove your case if a payment dispute arises.
  • It’s More than Your Customer. Some parties in the ladder of supply may face financial difficulties — whether it’s contractors filing for bankruptcy, insurance claims getting delayed, or property owners struggling to pay. Complicated payment chains aren’t a new phenomenon in construction, especially when the contractual chain (i.e., general contractor, subcontractor, material supplier, distributor etc.) gets tangled. One missed payment can create a ripple effect, and soon everyone’s waiting to get paid. Try to keep a pulse on any party that lies between you and payment.
  • Use NCS Credit. The laws around construction mechanic’s liens and bond claims can be complex. NCS experts are here to help you understand the steps involved, file your paperwork correctly, and make sure you’re not missing anything. It’s always worth getting expert advice to avoid costly mistakes.

Your Work Is Invaluable – Ensure Your Right to Recovery

The fires that ravaged Los Angeles were a tragedy, and the rebuilding efforts are crucial for getting communities back on their feet. As subcontractors, material suppliers, and contractors, you’re on the front lines of that recovery. But just as you’re working hard to restore what was lost, you also need to protect your right to get paid. California mechanic’s liens and bond claims are powerful tools that help secure your right to payment, even when circumstances are chaotic.

We Are Your Credit Ally

At NCS Credit, we understand the challenges that subcontractors and material suppliers face when it comes to getting paid. Our team of experts can assist you in filing the necessary paperwork on time, ensuring all legal requirements are met and your rights are protected. We’ll help you monitor deadlines, send the required notices, and provide the guidance you need to secure your payment. With our support, you can focus on what you do best — getting the job done.

Lien Index Q4 2024

Posted on January 23, 2025 by - Lien Index

NCS Credit’s Lien Index Ends Q4 2024 at 57, Down 7% from Q3

Slow payments continue to plague the industry, as the Lien Index ended 2024 at 57. Upside: lien activity did slow in Q4, with 4 point drop from Q3.

National Mechanic’s Lien Activity

The Lien Index ended 2024 at 57. This is an approximate 7% decline in activity from Q3 2024 and 5% decline compared to Q4 2023. Even though activity has slowed, lien activity remains above 50, as payment issues persist on projects nationwide.

The Index is predicted to remain over 50 in 2025, as we brace for a likely increase in bankruptcy filings and potential changes in corporate taxes, tariffs, and infrastructure investments.

Regional Mechanic’s Lien Activity

The South consistently led the nation in lien activity throughout much of 2024. However, in Q4, lien activity dropped sharply by 15%, yet remained well above 50, as lien filings continue.

In the Northeast, lien activity decreased by 10%, while the Midwest saw a 4% decline. After a couple flat quarters, lien activity in the West jumped 6% over Q2/3 and a significant 13% over Q4 23.

States with Highest Lien Activity

The top 5 states for lien activity were (in order of volume): Texas, Florida, California, Nevada and New York.

Top 3 States by Region

  • West: California, Nevada, Colorado
  • Midwest: Iowa, Ohio, Illinois
  • South: Texas, Florida, Georgia
  • Northeast: New York, Massachusetts, New Jersey

Looking Forward

As we navigate 2025, payment issues will continue to impact businesses throughout the supply chain, from material suppliers to contractors. Delayed payments and cash flow shortages continue to create significant financial strain, with slow-paying customers and financially troubled creditors compounding the pressure. The ripple effect is spurring uncertainty across the industry.

That said, contractor confidence remains strong, driven by ongoing demand in construction and infrastructure. Unfortunately, the economic outlook is still volatile. Bankruptcy filings are projected to rise, which will only increase the risk of unpaid bills and potential losses. In addition, shifts in taxes, tariffs, and infrastructure policies could introduce new challenges, or opportunities, depending on how the landscape evolves.

In this environment, it’s critical for businesses to be proactive in protecting their financial interests. Mechanic’s liens and UCC filings are powerful tools that give you legal recourse in case of non-payment. These protections ensure, even in uncertain times, your business has a clear path to securing payment for the work you’ve done. Take action now to safeguard your business against the challenges ahead.

Industry Experts

The Architecture Billings Index (ABI) dropped significantly in December, despite better conditions earlier in the Q4. “Firm billings have now decreased for the majority of firms every month except two since October 2022. While not a full-fledged recession, this period of softness and uncertainty has been challenging for many firms. And prospects for future work remain soft as well. Although inquiries into new projects continued to increase at a relatively slow rate, the value of newly signed design contracts decreased further in December as clients remained hesitant to commit to new work. In one brighter spot, backlogs at firms remained steady and strong at 6.5 months in December, so many firms still have work in the pipeline for now.” – The December ABI report

Associated Builders and Contractors (ABC) reported its Backlog Indicator was down to 8.3 months in December. “While backlog inched lower in December, contractors broadly expect construction activity to pick up in the first half of this year,” said ABC Chief Economist Anirban Basu. “Contractor confidence remained extraordinarily elevated in December, with the share of contractors that expect their sales to increase over the next six months now at the highest level since early 2022. Despite that confidence, the path of interest rates will play a critical role in industry performance in 2025. If rates remain higher for longer, backlog may remain subdued, especially in the struggling commercial and institutional category.”

The Dodge Momentum Index ended 2024 with 10.2% growth in December. “Commercial activity rebounded strongly in December, thanks to a re-acceleration in data center and warehouse planning activity,” stated Sarah Martin, Associate Director of Forecasting at Dodge Construction Network. “Overall, the strong performance of the Momentum Index this past year is expected to support nonresidential construction spending throughout 2025.”

Epiq Bankruptcy reported a 20% increase in Chapter 11 filings in calendar year 2024. “The continued increase in bankruptcies over the past year reflects the growing list of economic challenges faced by consumers and businesses,” said ABI Executive Director Amy Quackenboss. “Rising interest rates, inflation, increasing geopolitical tensions and shifts in post-pandemic consumer spending have more struggling businesses and families turning to bankruptcy for a financial fresh start from their growing debt loads.”

Preliminary Notices 101: A Beginner’s Guide

Posted on January 15, 2025 by - Preliminary Notices & Construction Credit

A Beginner’s Guide to the Preliminary Notice

Generally, the first step in the mechanicʼs lien process is to serve preliminary notices to various parties within the ladder of supply. It’s important to note that a preliminary notice is not a mechanic’s lien, but rather a prerequisite to filing the lien that identifies you as a supplier of labor and/or materials to the construction project. It’s also not a legal document that will affect your customer’s creditworthiness, unlike a mechanic’s lien which is formally filed with the state and/or county.

A preliminary notice goes by different names depending on the state in which it’s served. Some alternative names include: notice to contractor, notice to owner, notice of furnishing and prelien notice. Be careful not to confuse a preliminary notice with a notice of intent to lien.

Know the Difference: Statutory vs. Non-Statutory

Statutory notices establish your right to lien in the event of non-payment. They are governed by state law and typically must be served upon the general contractor and/or project owner within the specified timeframe. However, it’s recommended you serve the notice upon all parties within the ladder of supply to increase transparency and prioritize your payment. In states where a preliminary notice is required, failure to send a notice or meet the stated deadline can invalidate your right to file a mechanic’s lien on the project.

Currently, 43 states in the U.S. and one province in Canada have provisions for a preliminary notice to be served prior to filing the lien. However, not all 43 states require a notice for every project type (private vs. public). Be sure to review the statutory requirements carefully.

Non-Statutory notices are not required by state law and are served upon all parties within the ladder of supply. This type of notice is strictly a precautionary measure intended to prompt timely payment. Failure to serve a non-statutory notice does not affect your mechanic’s lien rights.

Include Thorough & Accurate Job Info in Your Preliminary Notices

Collecting thorough and accurate job or project information is a critical part of the mechanic’s lien process. Job information is any and all detail pertaining to a given construction project. You should obtain this information prior to serving your notice to ensure it’s as complete as possible. It’s important to review the statute carefully, as missing or omitting required job information such as the furnishing dates, claim/contract amounts, party specifics, and material descriptions can leave you in an unfavorable position when it comes time to file a lien on the project.

Don’t Delay – Meet Your Deadlines!

As with many other aspects of the mechanic’s lien process, the deadline to serve your preliminary notice varies state by state. In most cases, your notice must be served within a set timeframe from when labor and/or materials are first furnished on the project. For example, a private project in the state of Ohio requires the preliminary notice to be served within 21 days from first furnishing, while a private project in Florida has a more lenient requirement of 45 days.

Some states, such as Texas and Louisiana, require a preliminary notice to be sent for every month that payment is not received. These states require greater management of deadlines which can slightly complicate the process.

Forget the Format? No Way!

Just as preliminary notices vary in name, type and deadline, each state has its own specific formatting requirements. Some states are particular about seemingly small details such as font size and bold/italic/underlined words or phrases. There have even been cases where companies lose their mechanic’s lien rights due to something as detailed as margin size. Review & re-review formatting requirements so you don’t lose your lien rights.

Make No Mistake – Serve Your Preliminary Notices Correctly

In most cases, preliminary notices must be sent by certified mail with return receipt requested or by registered mail. It’s important to save a copy of the notice and receipt so that if/when you file a mechanic’s lien on a project, you can prove compliance with the statute. Be aware, in several states, notices must be posted to an online registry.

Let’s Recap!   

  • A statutory preliminary notice establishes your right to lien in the event of non-payment
  • If serving a notice is not a statutory requirement, serve a non-statutory notice
  • Be sure your notice includes thorough & accurate job information
  • Be on time! Notice deadlines are critical
  • Make sure your notice meets any and all formatting requirements
  • Play it safe and send all notices by certified mail with return receipt requested, or as otherwise dictated by statute

Want more information on the mechanic’s lien process, or need assistance drafting & serving a preliminary notice? Contact NCS today!

Editor’s Note: This content was originally published in August 2019. It has since been updated and revised for 2025.

Navigating Credit Trends in 2025

Posted on January 6, 2025 by - In Other Commercial Credit News

Navigating Credit Trends in 2025: Embracing Technologies and Economic Shifts

Happy New Year! With a new year comes new opportunities and, of course, new challenges. Credit management is preparing for significant transformation this year. Rapid advancements in technology, shifting regulatory landscapes, and changing economic policies are reshaping the way businesses assess and manage credit risk. For companies looking to stay ahead of the curve, understanding these developments will be key to minimizing credit risk and maximizing profitability.

The Role of AI in Credit Management

Artificial intelligence (AI) is revolutionizing credit management by providing businesses with powerful tools to streamline processes, assess credit risk more accurately, and enhance decision-making.

AI’s ability to process vast amounts of data, identify patterns, and predict future trends is helping companies move from reactive to proactive credit management strategies.

  • Automated Credit Scoring: By analyzing alternative data sources such as payment histories, social media activity, and even behavioral data, AI algorithms can create more accurate credit profiles, reducing the risk of defaults.
  • Risk Prediction Models: Machine learning models are increasingly being used to forecast potential credit defaults, helping businesses identify high-risk clients and adjust payment terms accordingly.
  • Fraud Detection: AI’s capabilities in anomaly detection are being applied to credit card transactions and loan applications, making it easier to spot fraud and mitigate financial losses.

As with any technology, it’s important to note AI is still relatively new and certainly not without flaws. Evaluating and managing credit still needs humans – Credit Heroes. Credit Heroes have much more experience with nuances of business credit and the business relationship itself. You will remain vital in credit management.

Shifts in Regulatory Landscape and Its Impact on Credit Risk

The regulatory environment surrounding credit is evolving rapidly, with new policies and guidelines shaping how businesses manage credit risk and report financial data.

Keep an eye on Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance. Financial institutions and businesses are under increasing pressure to meet AML and KYC standards. Regulatory bodies are enforcing stricter compliance, requiring businesses to implement more sophisticated systems for verifying the identities of customers and monitoring transactions.

Economic Policies and Their Effect on Payment Terms and Liquidity

Economic policies, including interest rates, fiscal measures, and inflation control strategies, will play a significant role in shaping business credit practices.

Some trends to monitor this year include:

  • Interest Rate Movements: Central banks around the world are adjusting interest rates in response to inflation and economic growth patterns. Higher interest rates can increase the cost of borrowing, making it more expensive for businesses to extend credit to customers. Companies may need to adjust their payment terms or credit policies to mitigate the impact of higher borrowing costs.
  • Inflation and Payment Delays: Inflation, particularly in the wake of global economic uncertainty, may lead to longer payment cycles as businesses struggle with rising costs and cash flow constraints. Companies should implement secured transactions (UCC filings and mechanic’s lien processes) to improve cash flow and working capital.
  • Government Stimulus and Support Programs: Some economies may introduce stimulus programs or financial relief measures to support businesses during downturns. These programs can impact payment terms and credit risk as businesses navigate periods of economic volatility.

Filing UCCs and Protecting Mechanic’s Lien Rights

As businesses face evolving credit challenges, protecting financial interests through strategic secured transactions is critical, especially in industries like construction, manufacturing, and distribution where physical goods and services are exchanged. Fortunately, UCC filings and mechanic’s liens are our areas of expertise!

Filing UCCs (Uniform Commercial Code filings) and securing mechanic’s lien rights are essential to protect against nonpayment and aid in the collection of outstanding debts.

UCC Filings: Securing Interests in Personal Property

A UCC filing, also known as a UCC Financing Statement or UCC-1, is a document filed with the Secretary of the State which serves as public notice of a creditor’s security interest in certain collateral owned by their customer.

UCCs should be filed by any business that extends credit to its customers. If you sell goods or services on credit, you should file a UCC-1 Financing Statement to establish your interest in the goods provided. Then, in the event of nonpayment, you have the right to repossess your inventory or equipment.

Mechanic’s Lien Rights: Protecting Contractors and Suppliers

For construction-related businesses, mechanic’s liens are a powerful legal tool to ensure payment for work completed or materials supplied. Typically, a mechanic’s lien can be filed by contractors, subcontractors, suppliers, or other parties involved in the construction process to protect their right to payment.

A mechanic’s lien places a legal claim on a property until the debt owed for labor, services, or materials is paid. In the case of nonpayment, the lien can be enforced by forcing the sale of the property to recover the outstanding balance.

Each state has different rules and deadlines for filing a mechanic’s lien, but most require that the lien be filed within a specific time frame after the work is completed or materials are delivered. Failure to file within the window can result in losing the right to enforce the lien.

Both UCC filings and mechanic’s liens provide crucial protection for businesses in high-risk industries.

Credit Management in 2025 and Beyond

The credit landscape will be shaped by technological innovations, regulatory changes, and evolving economic policies. To stay competitive, you must adopt forward-thinking credit management strategies, maintain compliance with changing regulations, and remain adaptable to economic shifts. Additionally, using legal tools such as UCC filings and mechanic’s liens will be critical to minimize credit risk and maximize profitability.

  • Invest in Credit Tech Solutions: Embracing technology, such as AI-driven credit risk assessment tools, will be critical for businesses looking to stay competitive.
  • Strengthen Data Analytics Capabilities: Companies that leverage data analytics and machine learning to predict trends, optimize credit terms, and reduce risk will be well-positioned to succeed.
  • File UCCs and Mechanic’s Liens: In an uncertain economic climate, businesses must protect receivables, inventory and equipment. UCC filings and mechanic’s liens are legal tools proven to get you paid.

NCS Credit, Your Credit Ally

Every Credit Hero needs a Credit Ally! We are the industry’s only B2B full-service provider of UCC filings, mechanic’s liens and commercial collections. With unparalleled industry expertise, we understand the complexities of commercial credit.

NCS Credit’s Online Services is built for the busy credit professional, empowering you to quickly, efficiently and accurately protect your receivables in an easy-to-use central system. With a single login you have access to a powerful platform to manage collection placements, UCC filings, notices & mechanic’s liens, lien waivers and more!

Powered by our knowledgeable staff and fueled by technology, we will simplify your current process and deliver a best-in-class client experience. Contact us today to learn more!

Rental Equipment in Pennsylvania: The UCC Filing Advantage

Posted on January 3, 2024 by - Mechanic's Liens & Bond Claims, UCC Financing Statements

No Mechanic’s Lien Rights for Rental Equipment in Pennsylvania

Originally published in the Credit Research Foundation’s publication, Perspective by CRF (Q4 2023)

The Pennsylvania Superior Court released a crushing decision, wiping out mechanic’s lien rights for those who provide rental equipment to construction projects. Fortunately, mechanic’s liens aren’t the only form of security available to the equipment rental industry. In today’s post, we’ll review this recent Pennsylvania legal decision and how UCC filings are poised to be the payment leverage rental equipment companies need.

The Case at a Glance

The Case: RA GREIG EQUIPMENT COMPANY v. MARK ERIE HOSPITALITY, LLC, 2023 PA Super 206 – Pa: Superior Court 2023

The Result: Mechanic’s lien rights do not extend to rental equipment providers. Rental equipment isn’t incorporated into the improvement; therefore, it isn’t classified as ‘materials’ under Pennsylvania’s statute.

Background

R.A. Greig Equipment Company (Greig) leased a Telehandler-2019 Haulotte LT 9055 SN#2065360 to Mark Erie Hospitality, LLC (Mark Erie) for the improvement of a hotel lot and a second vacant lot.

In March 2022, Greig filed a mechanic’s lien to recover $56,392 in unpaid rental charges and $135,311 in equipment replacement costs (the equipment was allegedly damaged on site).

Mark Erie objected to Greig’s mechanic’s lien, and the Trial Court sustained the objection when it concluded the equipment and rental payments weren’t “materials” as defined under Pennsylvania’s statute. Fast forward, Greig appealed the Trial Court’s decision and here we are in front of the Superior Court.

Superior Court’s Decision: No Lien Rights for Rental Equipment

The Superior Court sought to answer several questions in its review of the case, but the one we are most interested in is whether Greig’s rental equipment and rental payments are considered “materials” and lienable under Pennsylvania’s mechanic’s lien law.

Under Pennsylvania’s mechanic’s lien law, Title 49 P.S. 1201 (7) “’Materials’ means building materials and supplies of all kinds, and also includes fixtures, machinery and equipment reasonably necessary to and incorporated into the improvement.”

The Superior Court had to dig into the archives for other cases that addressed materials and uncovered a case from 1923. In that case, a lumber company supplied lumber for temporary use and “no part of the lumber so used [became] a permanent part of the building.” The lumber company filed a lien, but its lien was removed because “no recovery could be had for materials not actually used in the building and that [the] defendant was not responsible for lumber . . . which did not and was not intended to become part of the structure.” Essentially, the lumber company’s lumber was not incorporated into the construction.

Based on the decision in the 1923 case, Pennsylvania’s Superior Court affirmed the Trial Court’s decision: Greig’s rental equipment and rental payments were not incorporated into the improvement, thus not lienable. Because the statute clearly states “…machinery and equipment reasonably necessary to and incorporated into the improvement.” (emphasis added).

No Mechanic’s Lien Rights? File a UCC!

This is an excellent (albeit unfortunate for Greig) example of how UCC filings are just as vital to ensuring payment on construction projects as mechanic’s liens. We work with construction companies throughout the country, and many will file both UCCs and mechanic’s liens depending on the state in which the project is located and what materials or services they are providing to their customer.

In this case, Greig could have protected itself if it had filed a Blanket UCC filing to secure its accounts receivable. Under UCC Article 9, a Blanket filing is a security interest in all assets of your customer on a non-priority basis, eliminating potential conflict with your customer’s primary lender. Think of it as a blanket that lays down over all customer assets.

What You Should Know about UCC Filings & Their Advantages

Here are a few key things you should know about UCC filings.

  • UCCs should be filed as soon as you have the signed agreement.
    • The Technical: Deadlines are determined by the filing type. Blankets should be recorded prior to lending or shipping, PMSI in Equipment should be recorded within 20 days of when the debtor receives possession of the collateral, and PMSI in Inventory must be recorded and authenticated notification letters must be sent before the debtor receives possession of the collateral.

Watch out for Preference: Let’s say you discover your customer is intending to file bankruptcy in the next month. Unfortunately, it’s too late to file the UCC as security because there is a 90-day preference period regarding all security interest filings and bankruptcy. Any security interest filed within 90 days of the bankruptcy filing will be dismissed as a preference and not considered part of the bankruptcy proceedings, leaving you as an unsecured party.

  • UCC filings are consensual. This means, your customer your customer signs an agreement agreeing to the filing. The agreement (e.g., the security agreement which can be built right into your contract) includes language granting you a security interest in certain goods and/or services.
    • The Technical: In compliance with Article 9-102, a Security Agreement is an authenticated agreement that creates or provides a security interest. The agreement must include the date, debtor’s legal name and address, authentication, granting clause, collateral description and default terms.
  • UCC filings do not impact your customer’s credit rating.
    • The Technical: UCCs will appear in a credit report, but simply to provide confirmation that another creditor has a secured position or that you pledged collateral for trade credit.
  • UCCs are a simple security solution (especially when you let NCS handle the details!) when mechanic’s liens or credit insurance just won’t cut it.
    • The Technical: UCCs do require strict compliance with Article 9. Time and again we see creditors lose their security because they failed to comply with sections like UCC 9-503(a) which dictates how to correctly identify your customer on the Financing Statement or UCC 9-108 which outlines how the collateral should be identified.

Remember, material and equipment suppliers aren’t limited to the mercy of mechanic’s lien rights. UCC filings are a simple, low-cost solution, to protect your receivables.