Welcome to the new year! We love how much hope this time of year holds. The sky is the limit as we look starry-eyed into 2022 with renewed enthusiasm: new intentions, new processes and plans, new ideas, and new ways to execute! The reality is, it’s so easy for that “newness” to wear off, and if we have not put an intentional plan in place to make our goals a reality, we won’t reach them. Being proactive in creating a plan for your construction business in the new year can seem quite overwhelming, but it doesn’t have to be. Having a consistent collection strategy is key to running a successful construction business, and with the new updates to the Texas lien process, you’ll want to make sure you are in the loop on these lien law changes when putting together your collection strategy and goals for the new year.
Start the New Year with a Rock-Solid Collection Strategy
Let’s take a look at 2021 and walk through this together to set a realistic goal for 2022. What did you write off in 2021? If that number was not zero, your goal for 2022 should be to cut that percentage in half. Meaning if you wrote off 5% of your gross revenue, your goal for 2022 should be to write off 2.5% of your gross revenue. Here are our top ways to have a rock-solid collection strategy and instantly improve your ability to collect:
- The key to having a good collection strategy is understanding that collections shouldn’t start when you are owed money, it should start before you begin a project. When you provide materials or labor on a construction project, you are extending credit to the owner or general contractor until you are paid in full. Starting your collection process at the beginning entails having a fair construction contract signed, having all of the contact information for the owner as well as the general contractor or whoever is in charge of paying you, and having a good construction attorney on hand that is ready to step in right away if there is an issue with payment.
- In addition, you need to have a designated contact that will handle collections and payment issues for you. Whether that is another employee at your company or a construction attorney, you need someone else to be the bad cop. You can’t be the salesperson and the debt collector at the same time.
- Most importantly, you need to know your lien laws and make sure you follow your state’s lien timelines to a T. Liens are your best and most cost-effective way to secure your right to payment. You can always send your notices early, but you can never send them late. Make sure you have a process in place so that you never miss a notice or lien deadline on any project. Here at The Cromeens Law Firm, we offer an unlimited lien subscription plan that allows you to offload all lien and collection efforts to our team of experienced lien and construction collection professionals for one flat monthly rate.
- Lastly, one of the most common issues for Texas contractors that leads to them not collecting 100% of what they are owed is retainage. The new changes to the Texas Lien law will make it easier for Texas contractors to collect retainage 100% of the time, to find out the specifics be sure to read our upcoming blog “How to Collect Retainage Every Time.”
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Updates to the Texas Lien Process
You need an intentional and consistent collection strategy that must include all the steps required to have a valid lien. The steps required to have a valid lien in Texas have changed. Beginning on January 1, 2022, there are some new things to consider when making your collection strategy.
When putting together your 2022 collection strategy as a Texas Contractor, it is crucial you keep in mind the following updates to Texas lien laws:
- The law changes on January 1, 2022, but these new rules only apply to original contracts signed on or after January 1, 2022. If you are owed money for work done under an original contract signed before January 1, 2022, you must follow the old rules to have a valid lien.
- You can now send your notice through any company that can confirm proof of receipt (before it was only via certified mail).
- If your deadline to send notice falls on a Saturday, Sunday, or legal holiday, you have until the next business day to send your notice. This is an incredibly beneficial update. Before, the rule was that if your deadline to send notice fell on a Saturday, Sunday, or legal holiday, you had to send it out beforehand.
- There is now a limitation on the timeframe of original contractors filing their liens. Under the old rules, if you were hired directly by the owner (original contractor), you could file your lien at any time until the owner sold the property. The new rules require the original contractor to file their liens on or before the 15th day of the fourth month from last work, for all projects except residential. For residential projects, the 15th day of the third month after the last work is required.
- Except for the original contractor, all liens for retainage must be filed within the 15th of the third month after completion, termination, or abandonment of the original contract.
- The second-month notice for Place 3 contractors (material suppliers and sub subs) has been removed. Everyone must send notice of unpaid amounts on the following timelines:
- For projects other than residential, notice must be sent to the owner and original contractor on the 15th day of the third month from when you provided labor and/or materials.
- For residential projects, notice must be sent to the owner and original contractor on the 15th day of the second month from when you provided labor and/or materials.
- A specific form of notice is now required for this notice. Sign up for our Collections webinar on January 20, where we’ll give you this form for free!
- Notice of a claim for retainage must be sent to the owner and original contractor within 30 days of completion, termination, or abandonment of your contract or the original contract, whichever happens first.
- A specific form is now required for the notice of claim for unpaid retainage. We will give you this form for free at our upcoming Collections webinar!
- The new law defines retainage as any amount that is withheld by contract. The owner is still required to withhold 10%, but now it is called “Reserved Funds.” Any lien on reserved funds must be filed within 30 days of final completion of the project.
- All liens are only good for one year from the date of filing (must bring suit to enforce the lien within one year of filing).
- 30 days’ notice of a hearing on a motion to remove an invalid lien is now required, and you are allowed to do expedited discovery.
- Notice to surety is now required on private projects.
- Only lien waivers that are approved by law are effective to waive your lien rights.
This is the largest change to the Texas lien laws we’ve seen in more than 20 years—and it is imperative to comprehend all the latest updates for your construction projects. At The Cromeens Law Firm, we understand Texas lien laws and will protect your hard-earned money on the front end. We strive to provide personalized service to collect what you are owed and that starts with setting up a strategic collection strategy. Schedule your one-on-one meeting with us today to learn how these updates affect your construction business and your collection strategies. We have an upcoming webinar on Thursday, January 20 at 12 PM CST where we will discuss this and more!
This article is intended as a general educational overview of the subject matter and is not intended to be a comprehensive survey of recent jurisprudence, nor a substitute for legal advice for a specific legal matter. If you have a legal issue, please consult an attorney.