January 2019

How to speed up
payments in the
construction industry

On average, slow or delayed payments add around 3% to construction projects’ general costs. That’s equal to an extra yearly bill of around US$40 billion—some of which may be your construction company’s money.

BDO’s construction industry professionals have identified several strategies and solutions that can help overcome the challenges that often lead to payment delays. Some are accountancy-focused while others are technological.

Below are some of the ways that your company can help speed up payments.

Send preliminary notices to promote visibility

Many construction projects are affected by lack of visibility and overview. Large-scale projects with multiple hiring-tiers tend to exacerbate said problems. Property owners, lenders and general contractors are rarely in direct contact with all sub-tier contractors, and payments often become a trickle-down affair that passes through several steps before getting to a specific subcontractor or supplier.

The levels between top-tier organisations and sub-tier parties can sometimes lead to top-level parties being unaware of all sub-tier parties. In other words, the problem becomes: how does a property owner or general contractor ensure that a specific sub-subcontractor gets paid on time if they don’t know they are contracted to work on the project?

Sending a preliminary notice, also known as notice to owner or pre-lien notice, can help both payer and payee. This document notifies all relevant top parties of what a subcontractor will be doing on the project as well as payment due dates. It also serves to ensure that all relevant parties are aware of who is involved in the project. Both contractor and subcontractors can help by integrating details regarding preliminary notices into the specifics of a contract. While some subcontractors may find this approach a tad aggressive, research shows that most recipients (83%) find preliminary notices to be helpful.

Send the right kind of lien waiver with every invoice

While most construction industry professionals are familiar with lien waivers, they may be less aware of the fact that there are different types of waivers, which each have their strengths and drawbacks.

The four main types of waivers are:

  • Partial conditional lien waiver: an agreement to waive rights to claim conditioned on receiving a specific part of the total payment.
  • Partial unconditional lien waiver: not conditioned on clearance of a payment. If a specific payment is not cleared by a certain date, the client has waived their right to that specific partial payment.
  • Final conditional lien waiver: conditional waiving of rights to a specific claim that is given upon receiving and clearing a final payment.
  • Final unconditional lien waiver: an agreement to waive rights to a claim that is not conditioned on clearance of a final payment.

If the difference between the four types seems a bit unclear to you, don’t worry. The technical details could fill a whole article, but in this context, it may be good to know that your company accountant is a good source for a further explanation of the pros and cons of each.

For now, it is important to note that liens are a great way of ensuring timely payment for contractors and sub-contractors. Both should have clear rules and policies for how liens are sent/received and processed, as well as what types of liens to use.

The focus should generally be on using conditional lien waivers, which can be used before receiving payment. Make sure to use completed conditional liens instead of blank lien waivers, which tend to lead to a time-consuming back and forth of paperwork before payment can be completed.


BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

ABOUT BDO

BDO is a leading provider of professional services to clients of all sizes in virtually all business sectors. Our team delivers a comprehensive range of assurance, accounting, tax, and advisory services, complemented by a deep industry knowledge gained from nearly 100 years working within local communities. As part of the international BDO network, we’re able to provide seamless and consistent cross-border services to clients with global needs.

Assurance | Accounting | Tax | Advisory
www.bdo.ca

January 2019

How to speed
up payments in
the construction
industry

On average, slow or delayed payments add around 3% to construction projects’ general costs. That’s equal to an extra yearly bill of around US$40 billion—some of which may be your construction company’s money.

BDO’s construction industry professionals have identified several strategies and solutions that can help overcome the challenges that often lead to payment delays. Some are accountancy-focused while others are technological.

Below are some of the ways that your company can help speed up payments.

Send preliminary notices to promote visibility

Many construction projects are affected by lack of visibility and overview. Large-scale projects with multiple hiring-tiers tend to exacerbate said problems. Property owners, lenders and general contractors are rarely in direct contact with all sub-tier contractors, and payments often become a trickle-down affair that passes through several steps before getting to a specific subcontractor or supplier.

The levels between top-tier organisations and sub-tier parties can sometimes lead to top-level parties being unaware of all sub-tier parties. In other words, the problem becomes: how does a property owner or general contractor ensure that a specific sub-subcontractor gets paid on time if they don’t know they are contracted to work on the project?

Sending a preliminary notice, also known as notice to owner or pre-lien notice, can help both payer and payee. This document notifies all relevant top parties of what a subcontractor will be doing on the project as well as payment due dates. It also serves to ensure that all relevant parties are aware of who is involved in the project. Both contractor and subcontractors can help by integrating details regarding preliminary notices into the specifics of a contract. While some subcontractors may find this approach a tad aggressive, research shows that most recipients (83%) find preliminary notices to be helpful.

Send the right kind of lien waiver with every invoice

While most construction industry professionals are familiar with lien waivers, they may be less aware of the fact that there are different types of waivers, which each have their strengths and drawbacks.

The four main types of waivers are:

  • Partial conditional lien waiver: an agreement to waive rights to claim conditioned on receiving a specific part of the total payment.
  • Partial unconditional lien waiver: not conditioned on clearance of a payment. If a specific payment is not cleared by a certain date, the client has waived their right to that specific partial payment.
  • Final conditional lien waiver: conditional waiving of rights to a specific claim that is given upon receiving and clearing a final payment.
  • Final unconditional lien waiver: an agreement to waive rights to a claim that is not conditioned on clearance of a final payment.

If the difference between the four types seems a bit unclear to you, don’t worry. The technical details could fill a whole article, but in this context, it may be good to know that your company accountant is a good source for a further explanation of the pros and cons of each.

For now, it is important to note that liens are a great way of ensuring timely payment for contractors and sub-contractors. Both should have clear rules and policies for how liens are sent/received and processed, as well as what types of liens to use.

The focus should generally be on using conditional lien waivers, which can be used before receiving payment. Make sure to use completed conditional liens instead of blank lien waivers, which tend to lead to a time-consuming back and forth of paperwork before payment can be completed.

ABOUT BDO

BDO is a leading provider of professional services to clients of all sizes in virtually all business sectors. Our team delivers a comprehensive range of assurance, accounting, tax, and advisory services, complemented by a deep industry knowledge gained from nearly 100 years working within local communities. As part of the international BDO network, we’re able to provide seamless and consistent cross-border services to clients with global needs.

Assurance | Accounting | Tax | Advisory
www.bdo.ca

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

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