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Dec 01 2016
The Importance of a Payment Bond
Rebecca Mullins, CCE, Ferguson Enterprises
The Payment Bond is an important document that can often be overlooked; It is a supremely effective collection tool for credit & AR managers in construction. The Payment Bond is a document that has a value issued to it and can be truly invaluable if job issues arise and payment is withheld.

A good rule to assist with securing the copy is to request it up front before a job is started. Another important reminder with bonded jobs is to require the sales and counter teams to obtain signatures on all delivery tickets in case of future legal proceedings because an unsigned delivery ticket may be disallowed for payment.

Many customers take issue when presented with requests for bonds due to a misperception that when a bond is requested it is because a company is not paying the bills. Build the relationship with the customer which will establish a trust level and assurance that the request is a part of policy and is strictly a way to protect both the suppliers assets as well as the customers. Explain the benefits of securing a copy of the bond and ask the important question, "Could they afford to not be paid?" The customer is concerned about the perception of the request and how it will serve them.

A few suggestions to assist with the request for the bond copy:

1.       Set a job limit that will require a bond. This will require an internal risk assessment of how much risk the company is willing to put on the line.

2.       Make it a requirement for the job check list. A copy must be received before the job is entered.

3.       If the customer is not bonded but the general contractor is, extend an offer to request a copy on their behalf due to it being a requirement for the job file.

It is a good reminder to discuss bonds every once in a while since the markets are always changing. At the time of writing this article I managed two different markets with differing lien laws, Utah and Colorado. The Utah market is blessed with the SCR (State Construction Registry) and many, but not all, contractors and general contractors will file their information on the SCR and include the bond information for public projects. This has been extremely helpful with customers that are not willing to provide the information, and it assists the credit team with an option to sell the job due to having the information necessary to make a good credit decision. Colorado does not have the visibility of obtaining the information so readily, and if the customer chooses to not provide the information, then the credit department must find other avenues to support the decision to sell. 


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