Most contractors can relate to payment and accounts receivable aging problems. Customers feed out excuse after excuse to delay paying a pay application or invoice in the construction industry.

This is why a poll in Construction Week Online found that 0 percent of contractors could report that they were always "paid fairly and on time," and conversely, 78 percent responded that they were facing "serious difficulty getting" paid.

In this article, we're going to explore the cause of payment delay in the construction industry, and what companies can do to offset these causes. What the research shows may surprise you, as there is a single thing your company can do today to reliably and consistently get paid on problem accounts. And it's easy.

Why getting paid is difficult in the construction industry

It's no secret that getting paid in the construction industry is difficult. The complex industry is riddled with opportunities for payments to slip through the cracks or to be subject to ambiguous and expensive legal disputes. Pay-if-paid and pay-when-paid clauses, joint check agreements, high failure and bankruptcy rates, workmanship disputes, change order requirements, scheduling and delay disputes — the list can go on and on.

Further, construction participants on every level of the contracting chain are always in a cash-flow battle. The dollar value of projects is typically high, and that means that one glitch in the payment flow or schedule can wreak serious havoc.

More than in any other industry, therefore, payment applications and invoices are prioritized.

Think about the excuses you usually hear when trying to get paid:

  • We forgot about the invoice
  • We didn't get the invoice
  • We are in a dispute with the other parties
  • We're waiting on money up the chain

Your customer isn't going bankrupt in these scenarios. Certainly, they may have a legitimate cash-flow challenge, but they are solvent, and they are keeping the lights on. They are paying vendors, and they are probably paying others. They just aren't paying you. Why is that?

The answer is that the customer isn't prioritizing your debt above the others — or, in a more unlikely circumstance, they are handcuffed because they can't get money from up the chain.

A simple and proven thing you can do to consistently get paid

This article's introduction promised that there is a single, easy thing your company can do today to reliably and consistently get paid on problem accounts. That single thing is the notice of intent to lien device.

The notice of intent to lien is well-known in the industry, but extraordinarily misunderstood.

First, it is rarely required by law. Only nine states have circumstantial notice of intent to lien requirements. Second, there's no established requirement or prerequisite to send the notice. Third, and most importantly, creating and sticking to a policy to consistently send these notices can do wonders to a company's bottom line.

Most companies are familiar with and utilize in-house demand letters, collection agency demand letters, attorney demand letters and/or "Dunning" letters. These letters, however, are not construction-industry specific, and their effectiveness is only marginal.

The notice of intent to lien document, however, is a Dunning or demand letter with serious teeth — and one that is specifically designed to address nonpayment scenarios in the construction industry.

Think about the reasons why payment isn't made in the construction industry. Sometimes it's a priority afforded to an invoice, but other times, it's out of your customer's hands. Demand letters and Dunning letters, however, do little for either of these problems.

A notice of intent to lien, on the other hand, attacks both issues. First, it prioritizes the sender's invoice above others because the interest is high on the project to avoid the lien. And second, it involves parties other than the sender's direct customer, such as the GC, the owner and the lender.

Most importantly, however, the documents work, and they work consistently. Research we've conducted demonstrated that over 47 percent of these notices pay within 20 days of delivery.


The cost of nonpayment to a construction company can be severe. In both a cause and effect of the payment quagmire in construction projects, construction companies have some of the highest failure rates in the nation. Since the margins are so small, every little bit of uncollectable debt has a huge impact. The extra revenue needed just to break even may be impossible to find.

How can you stop this cycle, and break out of your receivables rut?

Create a payment funnel and fully utilize notices and liens to your advantage. One key component of this payment funnel is the notice of intent to lien. Sending this document instead of your standard demand letter will push the right buttons and get cash flowing.