PAID by yaofenji


									better coordination of the trades, and
today’s smart homebuilder will clearly
find himself ahead of the competition.
   Q. Where do you see the biggest           Taking what you have coming
opportunities for small residential
contractors today?                           by Eric Wise, Editor

   A. If you look at the problems that              obert Bernstein of the Bernstein
the large homebuilders are experiencing             Law Firm in Pittsburgh explains
today, you will see that a large part of            what businesses need to do to col-
their losses are from the need to mark       lect on debts. His book, “Get P.A.I.D.,”
down the huge inventories of real estate     helps businesses reframe their credit
they need to stockpile for approvals that    policies, improve customer loyalty and
often take years to secure. Small home-      increase their profits. “Get P.A.I.D.” is
builders need to maintain tight control      available at and
over the lots they purchase to build on. For more informa-
   Next, they can seek to be designers-      tion, contact Bernstein at (412) 456-8101
builders who have total control over the     or
design as well as construction processes        Q. How can businesses get in trouble by
(where subcontractors are forced to          not planning for a delay in getting paid?
perform on time at the contract price).         A. Very simply, a delay in collecting for        Very simply, a delay
   Q. Can you explain how the                sales means less cash flow into the busi-
complex web of laws and regulations          ness. Less cash flow means the business            in collecting for sales
stymies innovative breakthroughs             has to use its own capital (or credit) for
                                             the people it has to pay. If it uses up its
                                                                                                means less cash flow
in construction?
   A. Compliance with the myriad of          cash, its capital and its credit, it cannot           into the business.
building regulations and codes is a          pay for what it needs.
complex process. Contractors learn               Q. Why should a business have a
over time to do precisely what the local     written credit policy if most customers
inspectors expect of them in the manner      pay on time?
that the code envisions from decades of         A. If the business is like a fast food
use. Such laws place a large obstacle in     restaurant, it probably doesn’t need a            A. Too often sellers try to increase
the way of innovations and technology as     written policy. It doesn’t grant credit.       sales volume with easy credit. If they
contractors are loathe to suggest means      Every business that lends money                don’t follow the basics of good lend-
and methods of construction — however        (extends credit) ought to have agreed          ing practices (preparation, assessment,
more efficient or profitable — as it often     rules for when and how that is done. As        implementation and defense — P.A.I.D.),
is met with reluctance by local officials,    a sole proprietor, you may not need to         they will have failed to help the customer
married to longstanding or outdated          have it written. But at some point, there      clearly understand the value he or she is
codes and regulations.                       is someone who is required to follow the       getting, what is due and when, and the
   Q. Can you explain how your               credit rules the owners (or managers) set      costs to the customer of a late payment.
book      suggests      mutable       cost   out. At that point, things should be writ-     Not clarifying the deal, not getting good
contracts prevent true competition           ten down. This doesn’t mean you need           credit information and documentation,
in construction?                             a 100-page manual, but you should at           and not having good follow up and collec-
   A. Today, contractors have every          least write it down so people can find it       tion policies are also common mistakes.
reason to bid low — bid at or below cost —   when making decisions.                            Q. If a company in financial trouble
in order to get the opportunity to make         Q. How should a business offer incen-       owes another business money, what
claims that hopefully will become the        tives for fast payment?                        can be done to improve the chances of
profit earned on the project. This low-          A. Extending the right to pay over          collecting on the debt?
bid system hurts the better managed          time is an incentive. Not having to pay           A. One way to reach into the debtor’s
firms who know the true cost of pric-         cash in advance (or on delivery) is worth      pockets is to get the written personal
ing the job, but know they cannot win        something in and of itself. Whether the        guaranties of payment of principals of
the bid in the face of more inefficient       seller needs to offer discounts, prizes or     the debtor company including partners,
firms who will low bid merely to get          anything other than the right to credit        shareholders and spouses. Agreement of
the job. The use of fixed-price contracts     depends on the market, the competition,        the principals’ spouses is important, since
that include a fair profit will eliminate,    the profit and the size of the sale. A 2        Pennsylvania law adopts the concept of
over time, the truly inefficient contrac-     percent cash discount may be expected          “tenancy by the entireties,” where credi-
tors, who will go out of business as they    in some industries, and it does represent      tors of only one spouse cannot ordinarily
fail to perform on time, and enable the      a significant cost to the seller.               attach jointly held marital property to
better managed contractors to grow              Q. What common mistakes do small            settle the one spouse’s debts. ▲
larger and more profitable and retain         business owners make that lead to prob-
                                                                                                    More Expert Insights on page 19
the best performing workers. ▲               lems in collecting what is due?

                                                                                            May/June 2008                    I 17

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