2025 New Year Credit & Collections Best Practices FL Webinar

In this webinar, construction professionals based in Florida can learn in detail about offering credit, extending the credit, how to avoid potential problems when you extend credit, and some key tips on how to collect credit. By following these steps, you can safeguard your business while fostering growth.

Why Should You Extend Credit?

Extending credit isn’t just about allowing customers to buy now and pay later. It’s a powerful business tool that, when used correctly, can yield significant benefits.

Build Customer Loyalty

When you extend credit, you make it easier for your customers to do business with you. The flexibility it offers shows that you trust them, which fosters loyalty and encourages repeat business. Just as credit cards have transformed consumer behavior, your credit offerings can transform how customers perceive your business.

Pro Tip: Consider offering early payment discounts (e.g., 2% off if paid within 10 days) to further incentivize timely payments and boost loyalty.

Maintain Financial Security

Extending credit doesn’t mean jeopardizing your financial stability. By thoroughly vetting your customers before extending credit, you can significantly reduce the risk of defaults.

Step-by-Step Tip:

• Implement a comprehensive credit check process (details in the next section).

• Require upfront partial payments from first-time credit customers.

• Monitor accounts receivable closely to spot potential payment issues early.

Align with Industry Standards

In many industries, extending credit is expected. If your competitors are offering credit and you are not, you might lose potential customers. Offering credit positions your business as professional and customer-focused, aligning with industry norms.

Gain a Competitive Advantage

Credit offerings can attract new customers and encourage larger purchases, as they eliminate the immediate financial burden for buyers. This can give your business a distinct advantage over competitors who require full payment upfront.

How to Check Credit Before Extending It

Extending credit without verifying a customer’s financial stability is a gamble. Here’s a detailed, step-by-step process to ensure your due diligence is thorough and effective:

Step 1 - Collect Comprehensive Information

Request a credit application from the customer. Ensure it includes:

• Legal business name (including designations like LLC, Inc., etc.).

• Physical and mailing addresses.

• Federal Tax ID number.

• Business license number.

• Contact information for key personnel.

Pro Tip: Use templates that clearly outline your credit terms and include a clause authorizing you to perform credit checks.

Step 2 - Verify the Information

• Paid Resources: Use platforms like Dun & Bradstreet, TransUnion, or Moody’s for detailed credit histories.

• Free Resources: Check Secretary of State websites to confirm business registrations and officer details.

• Local Resources: Search County Recorder’s Offices for liens, judgments, or other potential red flags.

• Online Research: Conduct Google searches to find customer reviews, complaints, or other relevant information.

Step 3 - Evaluate Creditworthiness

Assess factors like payment history, outstanding debts, and financial stability. If the customer’s credit score or history raises concerns, consider offering a lower credit limit or requesting additional security, such as a personal guarantee.

Step 4 - Make an Informed Decision

Once all the information is verified, decide on the credit limit and terms. Clearly communicate these to the customer in writing to avoid misunderstandings.

Here is a step-by-step guide to check credit:

Start with a Credit Application – The first thing that you should check is whether you have a written credit application which includes various key information, such as:

Business Name – You need to know the exact name of the business entity, whether it is Inc, LLC, Corporate, etc.

Address – You need to check if the address they provided is the actual and current address.

Tax ID – Most of the businesses will have a federal Tax ID. They need to provide this ID and you can use it to cross-reference that you have the right business name.

License Number – Check if they have a license and get their license number. You can use the license number to make decisions on whether to extend the credit or not. For example, if you find out that the credit applicant’s license is suspended, then it is an obvious sign that you should not extend the credit.

Bank & Business Credit – Ideally, you should get three to four bank and business credit references.

Verify the Information – Once you receive the credit application, you must verify the information they have provided. Simply getting the information on a credit application and doing nothing with it will be of no use to you.

Get Written Authorization – One of the key points is to make sure that you are getting their express written authorization to pull their background and credit information. For this purpose, a good practice would be to put in a sentence in the credit application that you are going to use the information provided for background verification.

Places to Check for Credit Information – Some of the places where you can check credit information are:

• Dun & Bradstreet (dnb.com) – You can find some basic information here, especially for older, existing companies. You may not find much information about newly established businesses.

• TLO (tlo.com) – TLO is a part of TransUnion now and you can sign up and use their services to check for credit.

• Cortera (cortera.com) – Another place to check for business credit information is Cortera which is now part of Moody’s.

• Secretary of State (SunBiz.org) – All the above places mentioned will typically require you to pay a fee for their services. If you want to use a free tool, then you can check the Secretary of State’s website which is a great place to determine some basic corporate or LLC formation information.

Even though you are using the above databases to verify information, it is recommended that you also look at other options to find more information. Below are some ways to check credit in public records:

• You can Google “___________ County Recorded Documents”. So, just put in the name of the county, for example, Miami County Recorded Documents to get a list of liens, releases, judgments, property transfers, etc. So, this is any document that's going to be recorded in the public record in the county that you're searching for.

• You can Google “__________ County Property Appraiser”. So, again you put in the name of the county, and you can look for current property ownership. One of the questions in your credit application may be, ‘do you own any property?’. If they put in the name of the property, you can check if they own it.

• You can Google “______ County Court Records”. With this search, you can look for open or closed civil or criminal cases.

Nowadays, you can find almost all the information online. So, make sure you use Google to find out all this information. You can also just type in the company and principals' names in Google and find a fair amount of useful information, such as:

• Online Reviews/Better Business Bureau Reviews

• License Complaints

• Mugshots

• Bankruptcies

• Related Companies

• Website that may reference them

All this information can help you determine whether to extend credit or not.

How Much Credit Should You Extend?

Determining the right credit limit involves balancing potential business growth with financial risk.

Assess Your Risk Tolerance

Ask yourself: How much can your business afford to lose if the customer defaults? This will guide you in setting conservative credit limits initially.

Start Small

Begin with a modest credit limit (e.g., $5,000–$20,000) for new customers and gradually increase it as they demonstrate reliable payment behavior.

Secure the Debt

To minimize risk, consider these strategies:

• Personal Guarantees: Require owners or key personnel to personally guarantee payment.

• Joint Check Agreements: Ensure payments are directed to you when working with contractors.

• Lien and Bond Rights: Secure your right to file liens or bond claims for added protection in case of non-payment.

Preventing Problems After Extending Credit

Once you’ve extended credit, proactive management is key to avoiding payment issues.

Set Clear Payment Terms

Include detailed terms in your credit agreements:

• Payment due dates.

• Late payment penalties.

• Dispute resolution procedures.

Pro Tip: Use plain language to ensure your terms are easily understood by all parties.

Monitor Accounts Regularly

Stay on top of accounts receivable by implementing automated tracking systems or using accounting software. Early identification of overdue accounts helps you act swiftly.

Communicate Effectively

Reach out to customers proactively when payments are overdue. A friendly reminder can often resolve minor delays before they escalate.

Effective Collection Tips

When payments become overdue, it’s crucial to act quickly and decisively.

Step 1 - Send Gentle Reminders

Begin with polite email or phone reminders. Sometimes, customers simply forget, and a quick follow-up can resolve the issue.

Step 2 - Escalate Gradually

If initial reminders fail, send a formal notice of overdue payment. Clearly outline the amount owed, the due date, and potential consequences for non-payment.

Step 3 - Offer Payment Plans

For customers experiencing financial difficulties, propose payment plans that allow them to pay in installments.

Step 4 - Utilize Legal Tools

Leverage lien and bond rights to secure payment. If necessary, escalate the matter to small claims court or involve a collection agency.

Understanding Lien and Bond Rights

A lien is a powerful tool that attaches to a property, enabling you to sell the property to recover the money owed. On the other hand, a bond claim provides security by involving a contractor’s payment bond. If you’re unpaid, the bond company guarantees your payment to the extent of your claim.

Key Timelines to Remember:

• Notice to Owner: Must be served no later than 45 days from the first day of work or material delivery.

• Claim of Lien/Bond Claim: File no later than 90 days after the last day of work.

• Lawsuit Filing Deadlines:

• For liens: File within 1 year from the lien’s recording date.

• For bond claims: File within 1 year from your last day of work.

Pro Tip: Avoid confusion between bond claims and Subcontractor Default Insurance (SDI). While SDI protects contractors from subcontractor failures, it does not secure your payment rights. Payment bonds and liens do.

Tools to Simplify Your Work

Staying organized is crucial for meeting deadlines and preserving your rights. Tools like SunRay’s Dcan help calculate essential dates, ensuring timely notices and claims. Visit Calculene.com to request a free desk tool!

Proactive Steps to Avoid Problems

• Rerun Credit Annually: Business conditions change, and rechecking credit ensures you’re not extending risk unnecessarily.

• Track Equipment and Materials:

• Confirm delivery locations with GPS tracking or manual checks.

• Ensure materials delivered to one project aren’t being diverted to another.

• Communicate with Customers and Sales Teams:

• Pay attention to signs of financial struggles like cash flow or payroll delays.

• Leverage your sales team’s insights to identify potential red flags early.

• Keep Accurate Delivery Records: A well-documented delivery ticket, with names and signatures, can make or break a lien claim.

• Avoid Listing Credit Limits Publicly: Credit limits on applications or agreements can be used against you in court, limiting recoverable amounts.

Effective Collection Practices

• Be Persistent: Politely but firmly contact delinquent account holders via phone and email. The squeaky wheel gets the grease!

• Engage Decision Makers: Negotiating with those who lack authority wastes time. Always deal with individuals who can make financial decisions.

• Condition Credit and Releases: When offering credits or signing releases, add conditions like “valid only upon receipt of payment by [date].”

Legal Actions and Next Steps

If you’re not making progress on collections, don’t delay legal action. While a lien or bond claim is vital, remember you have additional legal remedies:

• Unjust Enrichment Claims: Recover money for unpaid materials or labor that enhanced property value.

• Breach of Contract: Sue the party that ordered work or materials based on credit or purchase agreements.

FAQs

1. Can I file a lien without knowing the entity’s full name?

Yes, you can use the property owner's name from public records and any known details about your customer.

2. What should I do if a customer’s creditworthiness changes?
Reassess their credit terms immediately and consider reducing their credit limit or requiring upfront payments.

3. How can I ensure my lien rights are protected?
Always file notices and claims within state-specific deadlines. Missing a deadline could jeopardize your lien rights.

4. Is offering credit risky for small businesses?
While it involves risk, careful vetting and proactive account management can mitigate potential losses.

5. What are the key elements of a strong credit agreement?
Clearly defined terms, personal guarantees, and clauses outlining dispute resolution procedures.

6. Can I file a lien without knowing the entity name?
Yes, you can file by listing the property owner and your customer. Property records and notices of commencement can provide essential details.

7. Is there a dollar limit for filing a lien?
While some may consider liens under $2,000 impractical, it varies by situation. Evaluate the costs of filing and potential recovery to decide.

8. What if I miss the 90-day lien deadline?
You can still sue for breach of contract or unjust enrichment, though your secured interest through the lien is lost.

9. Do I need to include a spouse in notices?
Include all property owners listed in public records or the notice of commencement. It’s not mandatory to mention spouses unless specified.

10. Is negotiating payment with an admin staff effective?
No, always negotiate directly with decision-makers who have authority to settle disputes and approve payments.