Commercial - Construction Credit Solutions
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Whats new in Construction, continued...
A Few Words Impacting Cash Flow
Ontario Passes Legislation to Modernize Construction Laws
New Legislation to Ensure Ontario Businesses and Workers Get Paid on Time
On December 5, 2017 Ontario passed new legislation to improve the efficiency and competitiveness of the construction industry.
The Construction Act will include new prompt payment rules to ensure the Ontario construction businesses and its workers get paid on time for the work performed. The changes to the act will also modernize the lien and hold back process,
The Construction Lien Amendment Act, 2017 includes new prompt payment rules to ensure Ontario construction businesses and workers get paid on time for the work they do. The changes will also modernize the lien and hold back process, help protect creditors and a new adjudication process has been designed to resolve payment disputes faster.
The new process is designed so everyone in the construction pyramid should be paid within 42 days or less and if disputes occur a method is in place to expedite the disputes to a quick resolve.
The Construction Act consists of new rule to ensure prompt payment. The Construction Act which is now law, certain parts go into effect July 1, 2018 and the remaining goes into effect October 1, 2019. Prompt Payment is scheduled for October 2019.
It is our understanding the prompt payment timeline works as follows:
1. Owner receives "proper" invoice from the General Contractor;
2. Owner has 14 days to determine if invoice is correct or not;
3. Within 28 days of receiving the invoice Owner must pay the General Contractor;
4. General Contractor must pay subcontractors & material suppliers within seven (7) days of receiving payment from the Owner;
5. Subcontractors are to pay other subcontractors & material suppliers within seven (7) days of receiving payment from general contractor.
Below are some links to the Construction Act and Bill 142
NEVER ASSUME: Usually there are established credit practices in every industry, but there are also differences. It is very important that your customers know what your company's credit policy is in order to eliminate misunderstandings. Re-enforcement of that policy, when a payment first becomes overdue, is the first step in facilitating payment.
KNOW YOUR CUSTOMERS: In today's economy, no company should extend credit without checking the customer's credit worthiness. Invest in credit reports to ascertain the customer's reliability. In the event, the reports indicate irregular payments, the account should be kept under close scrutiny. Prompt monitoring & follow up even a week after a payment is delinquent.
KEEP YOUR CREDIT RECORDS CURRENT: Changing markets and management directions can quickly alter the health and stability of a company. Keep yourself informed with trade reports on specific companies, especially those which are your current customers or potential customers. If you have a vital vendor you may want to monitor them as well.
REVIEW AND TIGHTEN YOUR COLLECTION PROCEDURES: Periodic review of credit & collection policies and procedures is always beneficial. Unforeseen circumstances can never be eliminated, but you can minimize your company's chance of a bad debt loss by strict adherence to your policies.
DISCOURAGE EXTENDED PAYMENTS: Be very particular regarding which customers you permit to use extended payment terms. If you allow too many not only will you endanger your company's cash flow, but also lead to undesirable precedents as well.
SHORTEN THE COLLECTION SCHEDULE: After a customer is late with a payment on several occasions and you still wish to extend credit terms consider shortening the credit terms, i.e. instead of Net 30 consider Net 20 or Net 15.
KEEP COMMUNICATION OPEN: Communication is vital in every business relationship, make sure you are getting through to the right person - the decision maker. If necessary consider a visit to the customer.
RESOLVE DISPUTED MATTERS QUICKLY: If your customer is using a dispute over quality of merchandise or service, price or delivery as the basis for non-payment, identify the monetary value of the dispute, reach a mutual agreement for payment of the non-disputed portion to keep cash flowing. The remaining disputed portion resolve quickly preferably within the first 30 days or less. Your judgment will tell you when you have exhausted all the internal means at your company's disposal to negotiate a satisfactory solution. However, if your efforts do not bring results in the first 30-60, then you should consider seeking the help of a professional 3rd. party collection agency.
Turning to a 3rd party collection agency should not be considered "a last resort." The earlier an agency receives your claim; it will be better able to serve you. Working early with a collection agency will help you realize the maximum dollar recovery on your past due accounts while safeguarding your on-going relationships with your customers. Diplomatic courtesy reminder calls can go a long way in helping you get paid.