Selected topic
1
Joe Virene, Esq.
Seven Ways to Manage the
Credit Risk of a New Customer in
Construction and Oil and Gas
1. Get the Project Information Up Front
You should ask your customer for the owner’s name and
address, the location of the project, a copy of the payment bond (if any) and the general contractor’s name
and address (if you are a second tier subcontractor or
supplier). Having this information at the outset will
help you quickly send out bond and lien notices if the
new customer falls behind on making payments.
2. Require a Credit Application
Request that the customer sign a credit application. The
credit application should include the contact information of the customer, references, the name of the customer’s bank, and favorable terms and conditions governing future sales. The credit application should also
include the information necessary for you to run a credit check. Make sure the credit application is signed by an
officer of the customer or someone else authorized to
bind the company.
3. Get a Personal Guaranty
Request a personal guaranty from an officer or equity
owner of your customer. The most opportune time to
acquire a personal guaranty is on the front end when
the customer is applying for credit. You should consider
attaching the guaranty to the credit application or
incorporating the personal guaranty therein.
Strike or modify clauses that weaken your
right to payment.
4. Read (and Revise) the Subcontract or
Purchase Order Carefully
Strike or modify clauses that weaken your right to payment, such as contingent payment clauses, lien waivers
and broad termination clauses, and make sure the
indemnity clauses are even handed.
5. Ask for a Joint Check Agreement
Joint Check Agreements are common in the construction industry (though not so in the oil and gas industry). A typical joint check agreement provides that the
customer’s customer (e.g., general contractor or the
owner) will issue a check jointly made to you and your
8
B usiness C redit ma y 2 0 1 4
customer. This ensures that the customer uses the funds
to pay you rather than another bill.
6. Draft and Use Invoices with Favorable
Terms and Conditions
Draft invoices with favorable and clear terms and conditions. Such terms and conditions may not preempt your
subcontract, but it may still be beneficial to have favorable terms and conditions in your transactional documents. This is especially so if you are a supplier because
suppliers often do not have a formal contract with a
subcontractor or general contractor.
7. Watch Your Notice Deadlines
If you fear non-payment and the amount justifies the
legal expense, then contact an attorney immediately. Perfecting a lien or bond claim is the best way to get paid.
These deadlines, however, pass quickly and are often
difficult to calculate. As a general rule of thumb under
Texas law, you should contact counsel well before the
15th day of the second month after you furnished the
labor or materials related to the unpaid invoices. For
example, if you were not paid for labor and materials
provided to a Texas project in March, it may be too late
to perfect your lien and/or bond rights after May 15.
Joe Virene, Esq. is an associate at Gray Reed & McGraw PC.
Joe represents suppliers, subcontractors, engineers, general
contractors and service companies in both the construction and
oil and gas industries. He may be reached at 713-986-7206 or
[email protected]. Reprinted with permission.