Posted by & filed under Credit, Technology.

Dec 14, 2015

By Chris Ring, NACM’s Secured Transaction Services

There’s a poignant article written by Vivek Wadhwa in MIT Technology Review titled, “Laws and Ethics Can’t Keep Pace with Technology,” that is well worth reading for anyone in the business-to-business credit industry. The last part of the article read as follows:

“Thomas Jefferson said in 1816, ‘Laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths disclosed, and manners and opinions change with the change of circumstances, institutions must advance also, and keep pace with the times.’ The problem is that the human mind itself can’t keep pace with the advances that computers are enabling.”

As credit professionals, we need to realize that industries and governments are increasingly making use of technological advancements—and we must do so as best we can, too. In some cases, technology is “easier” to take advantage of, in cases such as credit card payments.  In other areas, it’s more difficult.  Construction-oriented credit professionals that want to use mechanic’s lien laws to secure their receivables need to have access to job information, which is not always able to be obtained and/or verified electronically.

Verifying the property owner of a construction project is more easily obtained and verified electronically in some jurisdictions (i.e., Florida) and more difficult in others (i.e., Texas). Credit managers operating in the construction industry must determine what parts of the mechanic’s lien process can and should be carved out for electronic automation and verify the reliability therein. And remember, if you’re working for a subcontractor, now you have to obtain and verify the general contractor’s (GC) information. If the project is not located in a state that requires the owner to file a notice of commencement, there may be no true way to confirm who the GC is on a private project short of verifying with either the customer or the property owner.

Building permits may be a source, when posted. Public projects require the GC to post a payment bond on many projects, which can serve as a source of verification.  In either instance, obtaining and verifing the GC is not one of those things that than can be reliably managed electronically.

Once job information is obtained, preliminary notices need to be served on many projects. If preliminary notices are completed in-house, job information verification falls squarely on the credit department. If preliminary notices are outsourced, service providers must be scrutinized regarding the methods they are using to verify job information. Which way preliminary notices are completed, all the required data to complete a preliminary notice should live in a common data warehouse (SAP, Oracle, AS400, Bolt-on program, etc.). This ensures the data can be easily managed. If a company is selling building materials to a subcontractor, hired by a GC, then the information on those parties needs to be in the same data warehouse. You’ll also need access to productions and/or shipping information for when materials were first and last furnished.

Additionally, more technology-based service have been written into state’s mechanic’s lien statutes. One that will surely be tested at some point in time can be found in Mississippi, illustrating a trend of more electronic options when it comes to filings that is unlikely to end. Mississippi updated its lien statute in 2014 to include a preliminary notice of furnishing provision. The preliminary notice must be served within 30 days of first furnishing either via certified mail or email with confirmed receipt. If material suppliers want to take advantage of the email provision, they need to first start gathering email addresses, but whose email address, company officer, purchasing agent? Certified mail can be received by any employee of the company for service to be compliant. Could you send the email to a generic email listed on a company’s website and be compliant? Then, if you’re in a court of law trying to enforce your lien rights, you may need to testify how the email server is confirming the receipt, in front of a judge who is not tech savvy.

Technology needs to be our friend. We need to keep striving for ways to foster that friendship. However, we also need to ensure we aren’t assuming technology saves today’s credit manager from performing due diligence, which these days includes researching when and how technology can be used in the lien and bond process and, more importantly, when it can’t.

 

Chris Ring is the National Sales Representative for NACM’s Secure Transaction Services and he specializes in assisting credit professionals to secure their receivables using Mechanic’s Lien Laws and Article 9 of the Uniform Commercial Code. Chris consults with companies on a daily basis leading them to find the best way to use these credit tools to assure that they are in the best possible position to get paid.

 

Originally published in May 2015

Leave a Reply

Your email address will not be published. Required fields are marked *