Getting paid in the construction industry is a mess.

Construction contracts are riddled with confusing provisions like pay-when-paid clauses or joint check requirements. Mechanics lien and security laws vary from territory-to-territory, and the jobs themselves present scope-of-work issues, inspection problems, and gray areas in change orders.

Yet companies can maintain a degree of control over their receivables and cash flow by implementing and committing to intelligent collection policies. These are the actions and procedures used by a company to collect on an unpaid account.

This article examines some elements of these collection policies to help your company create or improve on its own policies.

1. Pinpoint what accounts as a default

Is it perfectly clear when an account is in default and ready for collection efforts? Surprisingly, many companies have pretty flimsy regulations about what constitutes a default, and the definition of "default" consequently changes depending on the customer, project and other circumstances.

A reliable collections policy and action plan requires everyone in the company being able to clearly identify when an account is in default. An account is either in default, or it is not. If it is, then the company must employ its practices to remedy the default.

2. Nonwritten communication about the debt [optional]

We have marked this step as optional, and that's because there are good arguments out there that the first touch on a default account should be some automated email or physical mail message. By leaving humans out of the first touch, the company's collections staff will not have to hassle with accounts that will quickly pay after an automated nudge.

Nevertheless, there is always an option of making a quick phone call or getting in touch with the nonpaying customer through some meeting or voice correspondence. This may depend on the size of the debts at play, and the volume of the same.

3. Notice of intent to lien

I'm going to say it: Don't send a dunning letter. They are a waste of time, paper and hope. These letters are without any structure whatsoever, and so little about the letters are consistent across industries or even companies. The result is that the letters aren't effective and are frequently ignored.

There is a much better tool available to those in the construction industry: The notice of intent to lien.

A notice of intent to lien serves as an effective tool somewhere between the toothless demand letter and powerful mechanics lien instrument. It is a legal document that includes exact details regarding the intent to file a mechanics lien.

While a demand letter might establish that you are serious about collecting payment, it does little to address why your invoice isn't a priority. When you think about it, there is no difference between a demand letter and any previous friendly emails requesting payment. Even using stern language does not substitute for legal obligation.

A notice of intent to lien leverages your ability to file and serve a mechanics lien, which is by far the best tool to ensure payment on every project. By filing a notice of intent to lien, everyone on the project is informed.

This means not only will the nonpaying customer receive the notice of intent, but so will the owner, general contractor and lender. As no one wants the property to be tangled up in an encumbrance, the document puts pressure on everyone to make sure you receive payment so that a mechanics lien won't be filed.

The notice of intent to lien is the secret to getting paid in the construction industry — and for good reason. In a recent survey, it was determined that nearly half of all notices of intent procured payment when sent within 20 days. Compared to the less effective dunning letter and the more expensive mechanics lien document, this is an impressive number.

4. Filing A mechanics lien

When all else fails, leverage your right to security by filing a mechanics lien on the construction project. The success rate for these lien filings is huge, and companies make a mistake when they let their lien rights expire without pursuit.

Implementing the above steps into your collections policy should significantly reduce the volume of circumstances requiring a lien, but it all is for naught if companies do not follow through the funnel.