Often smaller construction companies operate on a tight cash flow. One of the biggest financial challenges for a small business owner is waiting as long as 60 days to get paid. Although extending credit terms is a normal part of dealing with clients, the same terms can put you in a bind if not balanced wisely. It’s important to balance the demand on your cash flow to avoid financial issues down the line or risk losing your business. This is why you must ensure that the people you do business with trustworthy where money is concerned.
Protect Your Business
Protect your construction business by putting everything in writing from the start. A contract protects you and your clients. In the event a client doesn’t pay you, the contract can ensure you will receive what is owed to you. Another way to protect your business is to negotiate. Never be so desperate for business that you fear losing a prospective client through negotiation.
Additionally, always leave a paper trail. Proper record keeping can serve as valuable proof for your transactions. Lastly, hire a reputable Tampa construction lawyer to either review existing legal documents or draft documents for new projects to ensure you are protected in every area before commencing a project. An aggressive Tampa construction lawyer can also negotiate on your behalf to limit your liabilities.
Factors to Think About
When assessing creditworthiness, keep in mind that lawsuits and liens are common in the construction industry. Think about it—almost half of all small business owners are dealing with customers who are more than 90 days late on payments, so it’s normal to see some negative filings on a credit report. Companies that may look “unworthy” may not be, so the following should be considered when evaluating a client’s credit history:
- (A few) small lawsuits are normal
- Unpaid tax liens are a red flag
- (A few) small claim judgments are acceptable
- Liens resulting from financing activities should not be an issue
- Smaller companies will have less active trade lines from different vendors than bigger companies
It’s ultimately up to you to determine if these negative filings are acceptable or not. When in doubt, consult a professional to help you make a sound judgment.
This is the conclusion of our series, please read part one to learn more.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.