Because You Can’t Un-build a Building
In the construction industry, it’s important to know who you’re working with up front. From developers to construction management firms to subcontractors, evaluating the financial stability of potential business partners will protect your investment and resources down the road. Because, let’s face it — if you don’t get paid, you can’t un-build a building.
At construction management firms, executives use credit reports to determine whether a client will pay its bills on time, or at all. Purchasing and estimating departments use credit reports to prequalify subcontractors. The contents of a credit report can indicate whether the sub will stay in business throughout the duration of the job and can perform as expected.
The lifecycle of a construction project depends upon regular, reliable payments every 30 days, as well as final payment upon completion. Regular pay enhances the chances a subcontractor can maintain the required manpower on the project and purchase the necessary material to complete the job. Subcontractors may ask to see the construction management firm’s contract with the owner before signing on to verify payment stipulations and also may use credit reports to determine if the firm regularly pays its subs on time and in full.
Here’s what a credit report will tell you about who you’re doing business with:
- Days Beyond Terms - A look at how quickly the company pays its bills after the due date, and whether or not there has been any change to its payment history.
- Officer Details & Group Structure - Who’s running the business, who they’re connected to, and if they’re connected to other companies. Can help you determine if the people behind the business that you are investigating are who they say they are.
- Inquiry Records - Who else is searching for the company? If you find a large number of inquiries during a brief timeframe, it could be a sign that the company is in financial trouble or needs to over-extend credit in order to stay afloat.
- Trade Payment Data - Company’s full trade line information, bank and lease agreements to see how much money they owe to other businesses.
- Judgments & Legal Data - Will reveal if there have been any legal judgments, UCC filings, tax liens or bankruptcies against the business.
Not being fully aware of the firm you are dealing with could result in substantial financial repercussions down the road. There are now subscription-based credit monitoring services that can eliminate the high costs of purchasing individual reports. Paying a set fee per month is far more cost effective if, for example, a CM firm is looking up credit reports for 10 different subs in one month.
While there is more to vetting a potential business partner than a credit report, it’s a financial tool that should be a part of every construction manager’s toolbox. Let’s all learn a lesson from Arizona Cardinals coach Dennis Green and be sure that our future business partners “Are who we thought they were!”
Matthew Debbage is the president of Creditsafe’s U.S. operations, overseeing the company’s expansion into the U.S. market. Creditsafe is the world’s most-used supplier of online company credit reports. Nearly 5,000 companies in the U.S. use its credit reports, ranging from small businesses to large, global concerns like Staples, Ryder and Nestle. Debbage, with more than 15 years of experience in market entry strategies, has successfully led the research, planning and launch of a number of operations in markets around the world, making companies more efficient and profitable.
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