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Collecting Accounts Receivables on a Construction Project

What are the best ways to secure payment and keep your company’s accounts receivables as low as possible?

First and foremost, if you have a written contract, you must understand how it will affect your ability to get paid.  Most construction contracts contain clauses dealing directly with payment, payment requisitions, and disputes involving payments.  The AIA (American Institute of Architects) documents require progress payments based on an application for payment that has been submitted by a certain day of the month.  Additionally, payments for construction projects may require partial waivers of liens before they are made.

Second, documentation will help ensure timely payment.  A common dispute between owner and contractor or contractor and sub-contractor stems from the approval of change orders.  In many situations, getting written approval for the change order work will quell any dispute.  If time prohibits a formal change order, a handwritten approval while on the jobsite may be enough to resolve any problem and prevent any withholding of payment for work performed and materials furnished.

Make sure payment requisitions, bills, or invoices are sent out in a timely fashion.  A party can’t (and won’t) pay if it has  not been billed.  Additionally, this will eliminate any surprise on the status or cost of the project, as the billed party will be able to easily recollect the work performed.

In situations where you have completed the work properly but have not received payment, you may need to take more aggressive measures to ensure payment.  If it is a public job, it may require making a claim on the payment bond.  In some situations, a mechanic’s lien may be appropriate, or you may need to consider filing a lawsuit in a court with proper jurisdiction.  In many cases, however, keeping tabs on your accounts receivable, properly documenting all of your work (both those within the original scope of work and those outside it), and understanding your contractual rights should alleviate the need for such drastic measures.

For more information related to the above or to any of your construction law related questions, please contact Michael W. Siri at (410) 583-2400 or siri@bowie-jensen.com.

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