This is a question frequently asked by those in the material supply business. In fact, it’s a common practice by suppliers to worry about preliminary notices only when an account goes unpaid. This makes mechanic lien compliance remarkably easier, because the company need not worry about sending notices to owner correctly every time or being informed about every state’s nuances. Instead, concern for preliminary notice and lien laws only arises on those few accounts that go unpaid.
Oh, if only it were that easy.
Unfortunately, when I encounter a business with a preliminary notice procedure like this or am asked about such a procedure, I warn them that this is flying pretty close to the sun. There are two primary reasons why this doesn’t work:
There’s Not Enough Time
The primary problem here is that there’s simply not enough time.
Let’s take a look why. Most supplier accounts are on a NET 10 or NET 30 basis. If you were to pull the trigger and send a notice immediately after an account becomes overdue, therefore, you’re sending the notice at least 11 or 31 days after furnishing it to the project. In many states, your notice would be too late.
Oregon, for example, requires preliminary notice be sent within 8 days of first furnishing materials. Those supplying equipment in Louisiana must send their notice within 10 days of the same date. Most states (California and Florida included) require notices to owner wtihin 20 days of first furnishing.
Waiting until an account is overdue is problematic because the time frame just doesn’t work. Plus, implementing a procedure like this is a slippery slope, because while I assume for this discussion that the notice will go out the day after an account is overdue, we all know that won’t happen in practice. There are business fires, delays, holidays, weekends, and just plain procrastination. The gap between when your notice was required, and when it’s due, will widen.
Segmented Compliance Is Prone To Errors
The other problem with this idea of sending notices only after an account is overdue isn’t as obvious, but it’s as prevalent. That problem is that segmented compliance like this is prone to errors.
Instead of implementing a mechanics lien and preliminary notice procedure that gets the correct notice sent out every time, sending notices and filing liens on an “as-needed” basis means that you and your staff are going to scramble every time there’s a non-payment situation to learn the applicable rules and rush out a form.
It’s almost a guarantee that this approach will result in error, not only because it’s being rushed and that results in error, but also because state laws are complex and contain nuances that get overlooked unless comprehensively understood.