If you’ve worked as a contractor for some time, you’re well aware of the financial burden that can come with new projects. Not only will you be tasked with setting milestones to ensure projects are completed on time, but you’ll likely have to cover material costs upfront.
Unfortunately, material costs can go well into the thousands, which means your company could be crunched for cash until they start receiving payments for the project. Even worse, payments for construction projects are often delayed, so the financial burden can span several months unless you pay for materials on credit.
The upside is companies can help you alleviate the added stress by financing construction costs like materials, so you can focus on what you do best. Furthermore, you could get paid faster by using a preliminary notice on future construction projects.
What is a Preliminary Notice?
A preliminary notice is a document that contractors, equipment lessors or suppliers distribute to all involved parties, including the property owner and general contractor, when a construction project starts.
Also known as a Notice of Lien Rights, Notice to Owner, Prelim, Pre lien or Notice of Furnishing, it divulges the following information:
- Your company’s name, phone number and email address
- The general contractor’s name, phone number and email address
- The lender’s name, phone number and email address (if applicable)
- The property address (and a legal description)
- The name of the bond surety company (if applicable)
- A breakdown of the labor your company will provide to the project
- A list of the materials that your company purchased and will use to complete the project
- The amount your company is owed for working on the project
- A disclosure notifying the recipient of their right to file a lien if payment isn’t received in a timely manner (only applicable in select states)
Depending on your state of residence, you may be required to send out a preliminary notice to all stakeholders. If you live in a state that does not require you to send out preliminary notices, you could forfeit your right to file a mechanics lien if you aren’t compensated.
Benefits Of Sending Preliminary Notice
Get Paid Faster
Preliminary notices, coupled with conditional lien waivers and pay applications (or detailed construction invoices), help simplify the accounting process for property owners. They also take the guesswork out of remitting payments to suppliers, contractors and subcontractors. Furthermore, contractors can resolve cash flow issues and accept other projects.
Better Communication
When preliminary notices are sent out, property owners get clarity on everyone involved in a construction project, the amount each party is owed and important milestones. Doing so also minimizes any confusion regarding the project, which isn’t uncommon due to the hectic nature of the environments most projects are completed in.
Avoid Filings
Property owners do everything they can to steer clear of mechanics lien claims. Therefore, if they receive a preliminary notice and are in the loop about who needs to be paid and when the chances of default on the initial agreement will likely be reduced.
How To Send A Preliminary Notice
Do It Yourself
You can send out preliminary notices via postal mail. However, be sure to mail the documents by certified mail with a return receipt. It’s equally important that you keep photocopies of the notices along with the return receipt should you need to file a claim at a later date.
Use Software
Instead of stressing out about creating preliminary notices on your own, you can use software to do the legwork for you. There is also an assortment of online templates available for use that are formatted per what’s mandated by each state.
Ultimately, preliminary notices put all parties involved on notice about the commencement of a construction project. They also provide an added layer of protection for general contractors, equipment lessors and suppliers if payment issues arise.
While labor costs may put a strain on your business while you await payment, there are options to free up cash that you’d otherwise incur with supply purchases.
