CHAPTER ONE
INTRODUCTION
- Background of the study
It is true that a lien and notice policy, when properly followed, will likely result in payment that’s the way the process is structured. However, in a case in which payment is not forthcoming of the debtors own volition, foreclosure of the lien may be necessary. While this is a power tool to procure payment, it is likely an equally powerful tool to alienate customers. Nobody wants their property sold. The ability to identify good customers, and build relationships with those customers, is the real backbone and purpose of a proper credit policy. Sure, it’s possible to take all customers, secure their debt, and use the mechanics lien instrument as a stick to prompt payment, but that’s not sustainable. A good notice and lien policy is there to secure the debt as a last resort, to make sure you get paid if something goes wrong, to provide security and peace of mind that your extension of credit is protected not to provide your sole collection mechanism. A good credit policy encompasses so much more than just filing notices and liens. A construction lien is an effective way to secure payment for the labor and/or materials you put into a person’s property. In almost all cases, it is less expensive and time consuming than suing for breach of contract. When you file a lien, you have the right to require the County Sheriff to sell the property you put work into and collect the amount owing from the sale proceeds. Because of this right to sell and collect, most lending institutions or other prospective purchasers will avoid any property that has a lien filed against it. Who would want to invest in a piece of property if someone else has the right to sell and take some of the money first? Thus, when you file a lien, you are in a much better position to secure payment from the unwilling owner because he or she will have a difficult time selling the property with a lien clouding the title. The filing of a lien does not guarantee payment, but it does prevent the owner from conveying the property without paying the lien or posting a bond. If you have not filed a lien (or do not meet the requirements to file a lien) but you do have a contract with the owner for the work you performed, then you can always proceed to court. Generally, a lien is a single piece of paper filed with the county recording office. However, UBA has some rules regarding who can file a lien and what the lien must contain.
Many companies avoid the implementation of credit policy due to high administrative costs. A good credit policy is as important to a company as its sales and customer service teams. A strong credit policy allows for all other parts of the company to operate in a broader manner because it opens up new avenues of revenue which were not there prior to credit being allowed. Credit policies are not designed to be restrictive, necessarily, they are put in place to provide structure, and create efficiency in the credit department. The ability to extend credit to a customer is not given, its earned by the credit worthiness of that particular customer. The credit policy is in place because the company is taking a risk when it extends work or materials to a project or client. Credit policy is in place to help mitigate the risk, formalize procedures for determining acceptable risk, and set up procedures for dealing with the credit relationship. There are a number of elements that go into a credit policy. Some of the more important ones include, maintaining good cash flow, reduction of the risk of bad debt, and management of debtors. Other important elements of the credit policy include the terms of the sale. Each debtor needs to know when payment is due and what the repercussions of non-payment are and these are contained in the terms.
