Mechanics Lien Importance Highlighted By Contractor Failure Rates

Mechanics Lien Importance Highlighted By Contractor Failure Rates

Failure rates of businesses after a 5 year period by industry sector, showing that after 5 years only 36.4% of construction businesses survive. Data compiled from the Census Bureau’s Business Dynamics Statistics by Scott Shane for Small Business Trends.

Hat tip to Mark Paskell of the Contractor Coaching Partnership blog for digging up a recent article from Small Business Trends reporting on the failure rates of construction businesses after a five year period.   The article highlights a statistic that should strike fear into the hearts of credit managers at construction or supply companies across the United States: After a 5 year period, only 36.4% of new construction businesses survive.

That makes the construction industry one of the most volatile. Our readers shouldn’t think of this as much of a secret, as we’ve reported similar statistics in the past, such as this post:  High Debt Ratios In Building Supply Industry Means High Risk – Can You Control The Risk?

So, what can you do about this?

The Contractor Coaching Partnership blog article focuses on what businesses must do to survive in the market and prevent itself from falling prey to this statistic. I, however, want to reverse the thought process and focus on what businesses must do to avoid being financially burned by a contracting company that goes belly-up.

[pullquote style="right" quote="dark"]when push comes to shove, it’s all about what frontend work your company has done to create loss-saving opportunities in these situations.[/pullquote] Just yesterday a client contacted me to advise that a good customer was filing for bankruptcy. The customer owed them nearly $100k.  These situations repeat themselves day-in and day-out across the country in the construction industry, and when push comes to shove, it’s all about what frontend work your company has done to create loss-saving opportunities in these situations.

What can you do if your customer files for bankruptcy protections?  If you didn’t preserve your mechanics lien rights you’ll be left fighting for scraps with other creditors in an expensive bankruptcy proceeding.  Those with protected lien rights, however, will simply bypass the bankruptcy process and collect from property owners, bonds, property equity and more.  It’s a no-brainer.  Mechanic liens save the day in the face of a bankrupt client.

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Scott Wolfe Jr

About Scott Wolfe Jr

Scott Wolfe Jr. is the CEO of zlien, a company that provides software and services to help building material supply and construction companies reduce their credit risk and default receivables through the management of mechanics lien and bond claim compliance. He is also the founding author of The Lien and Credit Journal, a leading online publication about liens, security instruments and getting paid on every account. Scott is a licensed attorney in six states with extensive experience in corporate credit management and collections law, with a specific emphasis on utilizing mechanic liens, UCC filings and other security instruments to protect and manage receivables. You can connect with him via Twitter, LinkedIn and Google+.

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