Safeguarding Your Rights As a Supplier

by | Jul 29, 2020 | Getting Paid

As a supplier, protecting your rights to get paid is critical for the long-term health of your business. Not knowing the value of liens and bonds, and how each can safeguard your payment, can be a big problem. Likewise not having good documentation in place is hazardous to your financial well being.

Do You Have The Right Documents In Place?

Make sure each of your customers has a signed, up-to-date credit application on file. Long time customers may have an old version – or not have one at all.  It’s a good idea to review all your accounts to ensure your best and latest terms and conditions are in effect. Some are concerned that asking for a new credit application sends the wrong signal to a customer.  So make the process less onerous by sending updated terms. Use electronic signatures instead of printing, and the response is likely to be positive.

If there are customers whose payment dependability makes you nervous, consider a personal guaranty. Perhaps when customers request an extension, let them know you are happy to do that as long as you are given a signed personal guaranty that another party is backing what you are owed. Again, use electronic signatures to simplify the process. A personal guaranty can be used on a job-by-job basis rather than as a blanket measure, which can appeal to a contractor for specific projects. A corporate guaranty is another option that may be available.

An irrevocable letter of credit issued by a bank can also be a means to get paid. Your customer would deposit a certain amount of money into an account, which would then serve as a hopefully unneeded safety net for you. This is often used with foreign shipments, when someone doesn’t want to pay until they have hands on a product. Keeping the money in such an account is an intermediary step that provides security all the way around.

Know how much risk you are willing to take before you put yourself in jeopardy of not getting paid. Take these preemptive measures to secure what you are owed. When necessary, put a hard stop on the credit you are willing to extend and make sure everyone is on the same page.

What About Direct Purchase Orders?

Sometimes you will enter into an agreement with an entity that has ability to buy direct to avoid paying sales tax on materials. You don’t typically need to Notice that type of job. For example, if the Miami-Dade School Board has a contract to renovate a school, and you have a contract with the subcontractor to provide $400,000 worth of pipe for that project, that contract is converted into a Direct Purchase Order (DPO). You will be in contract with the Board if they buy direct from you. There are no lien rights because this is a public project. If it is a bonded project, you have no rights to the bond because you have been moved “outside” to a contract with the Board. That’s who you have to look to.

A problem arises when you deliver materials up to the DPO amount, and then at someone’s request you sell beyond that amount. The School Board which had a contract for $400,000 can refuse to pay a cent more. The purchase order is a legally binding contract. There are two ways to remedy this, the first of which is preventing it in the first place. Don’t sell beyond the contracted amount.  Another approach is to include in the contract that anything beyond the DPO will become an obligation under the house account. The contractor would be required to pay the overage. Some suppliers insist that their customer guarantee the DPO amount. If not paid by the school board, the customer would still be liable, and the supplier would still get paid. Sometimes a disputed change order becomes an issue that impacts you getting paid. Having your customer guarantee all DPO’s is another way to decrease your risk and improve your ability to get paid.

The Lien Process

An important step in protecting your rights as a supplier is serving a timely Notice to Owner.  File the NTO no later than 45 days from your first delivery of materials on that job site. The 45th day is the day that Notice needs to have arrived in the mail to the owner and contractor. Do it much earlier than that.

If you use a notice service, get the necessary information to them early. They can process the form and get it to the post office by the 40th day. Once that manifest is stamped, there is a “presumption of delivery.”

In counting the 45 days, remember that if you deliver materials today, tomorrow is Day 1. Count all days including weekends and holidays. If the 45th day lands on a weekend or legal holiday, then that deadline would roll to the next business day. Only in limited situations is a timely notice delivered after the 45th day. The best advice is to serve early.

Set up a process in your office to Notice every job. Don’t worry about the exceptions and analyzing each contract situation. Make an internal business decision that if any order is over a certain amount – $500, $1,500, or whatever is right for your shop – that you will send an NTO, whomever the contract is with. Determine your dollar threshold and stick to it, no exceptions. The cost of sending an NTO is relatively small and missing a requirement or date is not worth the risk. Oftentimes a small job turns into a large job, but you cannot go back in time to send the required Notice.

Record the lien within 90 days of last work or delivery of materials on the job. It might sound obvious, but many still mistake 90 days as being an exact three months. Some months have more than 30 days, while some have fewer. Counting off the lien deadline follows the same rules as the NTO. Start counting with the day after the delivery of materials and include weekends and holidays. If 90th day falls on legal holiday or weekend, when the courts are closed, it would roll to the next business day. It is strongly recommended to start actively thinking about the lien process by Day 60, for several reasons.

If you wait, trusting in a promise of payment that doesn’t come through, then it’s a mad dash to get things done. The lien must be signed and notarized, and then physically taken to clerk’s office in the appropriate county. Illness, distance, and other issues could arise. Also, you may think recording electronically will happen quickly, but in reality the wait for the process to be complete has been as high as three weeks and rarely takes less than a few days. Bank on delays. And bank on mistakes happening when you wait until the last minute.

Timing can be important. If the money is substantial and you want to ensure your rights are protected, don’t wait past Day 60 to start the process. Delays associated with the Coronavirus pandemic have been widespread. Perhaps your county clerk’s office is open, but not for physical drop-offs. In one real instance, with 72 hours until the 90th day hit, paperwork for a $200,000 lien was taken to a county clerk’s office that was not open to the public. Not even pleading could get the documents inside, so it was back to the office to record it electronically – and send a hopeful affidavit stating the steps that were attempted to meet that 90th day. Avoid such situations by liening early.

The last step in protecting a supply house’s rights is to file a lawsuit to foreclose on the claim of lien within one year from recording it. Remember, these are all outer-limit deadlines. Nothing stops you from liening on Day 4.  Unless you have a business reason or relationship that prompts you to wait, the best practice is to spend the 30 to 60 days after recording the lien pursing collection efforts.

Call, email, visit, push and prod, and actively consider sending it to a law firm for collection. The passing of time rarely results in getting paid. Especially in the current economy, doing something more aggressive is likely necessary if you still haven’t been paid in 30 to 60 days. Collection is like a slowly tightening vice; the pressure brought to bear and hopefully causes the other side to start releasing funds and get you paid.

Sometimes you can’t make progress getting paid, and a demand letter is ignored as well. A lawsuit, however, changes the dynamic. Nothing happens by ignoring a letter. But ignoring a suit leads to automatic default, and a loss. Failure to act on a suit has the direct consequence of a monetary or property judgment. Sometimes a lawsuit is the only course of action left to take.

Is there a Bond?

The process for dealing with a bond payment claim is similar, with a few key differences.

Private projects of a larger scale are typically bonded, but they don’t have to be. Find out the bond status of a particular job by pulling the Notice of Commencement and looking for that information. If you use a notification service, that research will be done for you, as will sending of the proper notice.

If the job is bonded, that first Notice To Owner must be received no later than 45 days from the first delivery of materials to the project. The same rules on counting still apply. Begin the day after first delivery and include holidays and weekends.

The next step is serving a Notice of Nonpayment – a “cousin” to the claim of lien – no later than 90 days from the last delivery to the job site. Before 2019, this amounted to a brief letter pretty much stating, “Pay me.” The present-day Notice of Nonpayment is an information-filled form that must be signed and notarized. Remember that 90 days can be eaten away by mailing times and potential administrative delays. Do not wait on serving the Notice.

Finally, the lawsuit on a payment bond, against the bonding company, must be filed within one year of the last delivery of materials to the job. Don’t confuse this deadline with the lien foreclosure deadline. There’s a potential of a 90-day difference between the two, and mistakes can be costly. Make it your practice not to get too near that year mark on either. It’s wise to send the Notice of Nonpayment and start the process of active collection efforts from 30 to 60 days out. If there’s no result, seek legal help to send a demand letter and then file suit.

When pursuing a payment bond claim, you may receive a letter from the surety asking that you send additional information for the evaluation of the claim. This is usually a tool used by the surety to find reasons not to pay you. Under Florida law, there is no obligation to respond to that request. If you decide to send information, don’t assume it will hasten payment. Suretyship is not insurance; the surety will have to go to whomever issued the bond to get their money back so there’s no assurance of a quick payment.

In a situation less common, the subcontractor you are selling materials to might have his own bond, especially if he has a high-priced contract. There’s no recording of this bond in the public record. However, you can always ask the subcontractor or the general contractor for confirmation as to whether a bond exists and formally request a copy as well. A subcontractor’s surety would owe you a payment obligation, just like the contractor’s surety would. There are situations in which suit is filed against both bonding companies, letting them argue about who will pay, but this is rare.


As you can see there are a number of things you can do as a supply house to protect your rights to get paid.  Review your current credit documents.  Do you have terms and conditions which are timely and applicable to your customer base? Should you be asking for a guaranty or a letter of credit? Have you reviewed to be sure pandemic issues are addressed?  Preserve your lien and bond rights as needed if that’s the only remedy available.  The law is there to protect you; use it.

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