A thorough lien policy is one of the best ways to ensure payment. However, it's important to note that filing a lien is only one step in a lien policy, and it's a step that a successful lien policy will rarely use.

In fact, in the larger scheme of lien strategy — as it relates to credit management and receivables policy — if the rest of a company's credit policy is working, most projects won't ever require a lien to be filed.

There are five steps necessary to a functional and successful lien policy. Each of these steps — protect, monitor, warn, secure and enforce — should be used in succession. When used in a systematic manner, they can reinvent a construction industry participant's receivables.

Every project a construction industry participant is involved with should be "protected," but that does not mean liens are required for every (or even most) projects. What protection means, in this sense, is that every project should remain in a secured position and that the construction industry participant should take care to promote their own visibility on each project.

Only a small portion of projects and invoices ever reach the "secure," or lien filing, stage of the methodology. In fact, when preliminary notices increase (the "protect" step of a successful lien policy), the number of liens that are eventually required decreases.

Sticking to a thorough lien policy — including sending preliminary notices on every project — limits the number of liens required to collect payment on every project. For many projects, the visibility provided by sending preliminary notices is the only step required to get paid.

Why have a lien strategy?

Given the above, the answer to the question posed by this heading is simple: to get paid. An optimized lien strategy bolsters and optimizes a company's receivables through several channels, each of which can help get companies paid, and paid more quickly.

1. Protect the right to lien

The strength of a lien policy comes from leveraging the power of the mechanics lien. Because of this, protecting the ability to file a mechanics lien is the most important objective of a comprehensive lien strategy.

The mechanics lien is a powerful document that secures the right to payment for parties improving real property. However, there are a few things complicating the process for these parties. Complex rules and regulations required to use the mechanics lien differ from state to state. If any of these complex prerequisites are not complied with, a potential claimant may be prohibited form filing a lien entirely.

2. Prioritize invoices

Implementing and following a comprehensive lien strategy is a sign that a construction industry participant knows what they are doing, knows how to best position themselves, and are serious about getting paid. Additionally, sending notices makes sure that any parties above the noticing party on the contracting chain are aware that the noticing party has retained the right to file a valid mechanics lien if the need arises.

In addition to that, however, sending notices provides visibility. Since many construction projects have participants that are unknown to the top of the contracting chain, sending a preliminary notice can make sure that those parties are not overlooked when payments are made.

3. Timeline for payment

Invoices and pay-apps in the construction industry are often treated just like invoices in other industries — with excuses or slow payment. A company with a proper lien strategy, however, has a concrete timeline by payments must, and will be, received.

Because state laws impose specific deadlines for notices and liens related to certain project dates, the dates by which certain actions must be taken is clear. Further, these lien and notice deadlines are visible to both the payor and payees, so they create a concrete timeline that can be used to encourage timely payment.

4. Visibility and reminders to pay

Following a lien strategy is not an adversarial strategy. The very nature of construction projects makes it such that some parties are unknown to other parties, and this occurs on virtually every project.

By sending preliminary notices, the parties closest to the money are informed that a particular party is on the job and doing work. That way, if payment is delayed or money runs out for some reason, the party giving notice is not overlooked.

5. Optimization

Finally, a lien strategy developed to utilize the available software platforms designed for that purpose can help companies become more efficient with their entire credit management process. Technology can be harnessed not only to optimize the automatic sending of particular notices and other documents, but also to dig into company-specific data for optimization purposes.

For example, a company can use their own data to learn and understand the specifics as to when and on which projects giving certain notices create the best results. And, by doing this, companies can optimize and streamline their credit and collections processes.