Beyond Prompt Payment: Processes and Options for Timely Compensation

December 16, 2019

“I’d just like to be paid”

It hardly seems fair. You’ve worked all your life gaining credentials, securing a position and building a reputation. You’ve had to create your own opportunities. No one gave you that contract; you had to compete for it and it was awarded to only you. You rallied an able workforce (after convincing them to trust you and stick around the province because something was sure to come up), and did a timely job (when you consider how long your client made you wait to start). It hardly seems fair that what you issued as an “invoice” is now called a “receivable” and you have been waiting to receive a payment for 30, 60 or too often 90 days or even longer.

Across the country, the buzz in legal circles is about “prompt payment” — or more accurately “prompt payment and adjudication.” The name is certainly appealing: imagine not only being paid for your work but being paid promptly, almost automatically. Most in the construction industry locally would be content to see payment reasonably and predictably. Like everything else, however, it does not happen automatically: you have to make it happen.

Clarify expectations

Step one is to be sure that everyone understands what is expected. The roofer that worked on my mom’s house not only provided a written quote but said upfront that payment would be due immediately. My mom explained that she needed to attend to some banking but that, if the job could be done this week, payment would be available next week. Both sides were agreeable and both were pleased with the outcome. If you are supplying to a contractor who mentions a “pay when paid” clause, ask up front what that means to you. Clear communications cannot guarantee that there will be no issues, but they go a long way to minimizing assumptions and disappointment.

Issue the invoice

Next, issue a timely and accurate invoice. Apart from capitalizing on what will hopefully be some satisfaction with the work received, and ensuring that the allocated funds are not used elsewhere, you do not want to provide the first reason for delay in payment. Most accept invoices by email but, to avoid excuses, provide a hardcopy at the same time. Make sure that the email subject line includes the word “invoice” and some reference to the work and, where appropriate, send the email to the individual to whom you reported as well as to the department or individual that cuts the cheques.

Follow up

Once payment is due, the invoice has become a receivable. Particularly if you sent it by email, it is not rude to follow up shortly thereafter to make sure that it was received. If it is not paid within your expectations, it is also not rude to ask if there is some issue or if anything further is needed prior to processing.

Track receivables

Keep on top of how long your receivables are out there. A powerful tool available in the construction industry is the mechanics’ lien, but it is very specific and is only available if you comply strictly with the statute. There is no provision for extension; a claim for lien must be filed within 30 days of the last date that you supplied work or materials to improve a building or land and later perfected by legal action and further registration. Liens extend your reach beyond the party that you worked with directly and across the “supply chain” to impact the land owner. Liens come with specific procedural requirements (and advantages) if you have to see the matter through to trial, but because they create direct interests in property, their true value is often in capturing attention. Because most developments include elements of financing tied to the property, a lien can be very powerful in improving your relative bargaining power.

Liens and litigation

Mechanisms for prompt payment and adjudication are refinements on construction or builders’ lien mechanisms. Based on concepts of holdbacks, trust, transparency and notification, Prompt payment operates to oblige specific actions and reactions, consequences when those obligations are not met, and opportunities to fast-track (at least temporary) resolutions when hurdles appear. If there is an issue as to whether payment is due or not, then the goal is not prompt payment but prompt resolution. A precursor to introducing these principles has been the modernization of the underlying legislation to ensure that it will be functional. There are two sides to the coin: a longer lien claim period obliges a correspondingly longer holdback. If an invoice is the starter’s pistol to a prompt payment, then it has to be a proper invoice or you risk shooting yourself in the foot. In some ways it is useful to consider it prompting or causing payment, so the value of ensuring that the underlying system reflects a reasonable commercial reality should be obvious.

If litigation is the only alternative, avoid waiting too long to initiate the action. Apart from statutory limitations, keeping evidence and witness memories fresh will be critical. When it comes to pulling together records, sooner is always better than later but never assume that it is too late: anything will be better than nothing.

Try to know where the money is and pay attention to the debtor. If failure to pay has been because they are winding up business, there may be opportunities to attach assets pre-judgment, to make sure that something is preserved for when you have a judgment in hand. Where the only issue is non-payment—as opposed to an argument that no payment is due—the litigation should be more straightforward.

It can be difficult, but it need not mean burning bridges: work with your counsel to understand how to maintain communications with the debtor. Understanding the issues can reveal opportunities for you to improve the situation. For example, are they in a cash crunch and need to break your outstanding debt into payments or do they need you to stand down while they await a holdback release? If you are faced with a compromise, remember that even a full recovery is usually offset with costs, even if it is the cost of not having your money and relying on other resources.

Conclusion

It is important to enjoy your work, but that can be difficult if you do not pay attention to your business. When people are pleased with my work and ask what they can do for me, my answer is simple: their thank you is reward enough, just so long as they pay my bill.

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Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.