Magazine article Business Credit

Getting Information despite Customer Resistance

Magazine article Business Credit

Getting Information despite Customer Resistance

Article excerpt

Failing to garner and review critical information such as financials or, in the case of construction-related credit-granting, bond information that is accurate can lead to catastrophic losses. In the world of construction, payment bonds are required by law for general contractors (GCs) in most cases. People often send incomplete or incorrect information, if they send anything at all.

On federally owned property, the Miller Act governs all 50 states and requires correct bond information. A series of Little Miller Acts across the country covers projects at the state level; each is subject to state regulation. Little Miller Act bonds can have thresholds that exclude bonds based on the total contract price. Bonds can also be a percentage of the contract price. (Florida is the only state where payment bonds may be recorded and obtained from county records.) Most states have also started approving public-private partnerships (P3s) that link private sector resources with public-sector knowhow and ability, in theory, cutting through red tape. Legislation has helped install better payment assurances for suppliers and subcontractors in many cases. However, state payment assurances vary wildly and in some cases leave suppliers exposed.

Even with these assurances on government projects, it is never enough to look at the property owner and assume a project will be bonded. Unfortunately, magical sites to universally locate payment bonds simply do not exist. On public (federal) projects, whether you are supplying to a GC or a subcontractor, it is essential to secure a copy of the bond prior to shipping. This gives credit managers the ability to check the financial worth of the surety and allows them to be confident of the security.

Companies should obtain copies at the beginning of the job, long before anyone is unhappy or not being paid as agreed. For example, a California company that was owed more than $70,000 on a public project found out after the product was shipped the bond was never secured; its attorney discovered this information from the local authority. Had the company known about the lack of bonding, its upper management and credit department should have asked: When bonds are not obtained before shipping, is the customer creditworthy or the job important enough to take the risk and proceed?

So, what does a credit professional do when the other party keeps stonewalling them?

Get It in the Contract

Although the best way to obtain information on a bond or surety is to simply ask and receive, creditors can also build the request into the contract at the beginning of a relationship. A clause in the contract can state that the company will not ship any equipment prior to receiving the "Project Profile Information." If the information has not been received before the ship date, the option still exists to call the customer and request the information.

Even incomplete information can be helpful in the event that backdoor investigation is necessary. If the surety company is known, but the bond number is not, a credit manager can use the signed contract as a means to obtain the information from the surety.

Every company has a different policy on who is responsible for job information and payment bonds. …

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