eNews November 8, 2018
In the News
November 8, 2018
With Automation on the Rise, Faster Payments Become Key for Treasurers
Credit managers often feel comforted when they know faster payments are not only possible but probable thanks to their companies’ and customers’ investments in new technology. In the commercial payments sector, real-time payments are high on the wish lists of finance professionals. Embracing and implementing new payment methods, or any beneficial technological advances, is a strategy today’s creditors use to appeal to new customers and adopt with current ones. Among them are a significant number of treasury professionals in several countries who voice their support for same-day and/or immediate payment solutions to reduce the complexity of corporate payment operations.
Stretching from North, Latin and South America to Western Europe, Africa and Asia-Pacific, corporates are adopting faster payment methods at a steady rate. Bottomline Technologies, Strategic Treasurer and Bank of America collected input from about 275 treasury professionals in these locations over a two-and-a-half-month period during which they learned nearly 65% are already using same-day and immediate payment platforms. So, what is increasing their appetite for faster payment tech?
According to the 2018 B2B Payments & WCM Strategies survey report, nearly 60% of corporates believe invoice delivery is the “most important process to automate,” followed by more than half who are focused on transitioning from paper to electronic payments. About a quarter of respondents plan to invest $100,000 in new payment tech in the coming year.
“ACH ranked as [the] most preferable and most efficient form of payments compared to checks, cards and wires by both small and large corporates,” the study states. “At the same time, checks ranked as least preferable and [the] least efficient payment type. This data continues a multiyear trend of corporates favoring ACH and disliking checks.”
Same-Day ACH and Real-Time Payments (RTP) garner the most interest from corporates. The study notes the widespread popularity of Same-Day ACH is most likely due to its easy implementation, unlike blockchain, which only 5% of corporates said they currently use. Overall, more than a fair share of corporates are pleased with the current status of payments with their banks, stating “all things considered, banks appear to be doing a good job with addressing the corporate environment’s payables needs and with fostering innovation in the B2B [business-to-business] payments landscape.”
An earlier survey by TD Bank revealed similar findings from nearly 400 corporate professionals who indicated the wave of new payment adoption will have the “greatest positive impact on the industry” in the next three to five years. However, the one form of payment innovation yet to be seriously considered by many corporates is cryptocurrencies. Between high risks of cyberthreats and payment fraud, TD Bank states 84% of its respondents in 2017 believed fraud will only increase between 2019 and 2020.
—Andrew Michaels, editorial associate
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Team discounts (5 or more) are also available for larger member companies.
A Mechanic’s Lien Is Not Your Only Option, Part I
A mechanic’s lien is a tremendously effective tool for getting paid on private construction projects. Oftentimes, just the threat of a lien will facilitate prompt payment. However, there may be times when it is not possible or advisable to file a lien. For example, you may have missed the deadline to file. Or, perhaps there is insufficient equity in the property to make filing a lien worthwhile. It is even possible your lien might be discharged because the general contractor on the project filed a lien that includes amounts due to you.
Whether you failed to file a lien, chose not to file a lien, or filed a lien and also would like to utilize an additional collection tool, you should be aware of Connecticut’s Fairness in Construction Financing Act (the Act). The Act applies to most privately owned construction projects in the state and provides contractors and suppliers with significant leverage when dealing with nonpaying owners or general contractors.
This article discusses the Act, how you can use a specific provision of the Act to get paid, and compares the Act to Connecticut’s mechanic’s lien laws.
A supplement to Connecticut’s mechanic’s lien laws: Connecticut’s Fairness in Construction Financing Act
The Fairness in Construction Financing Act, Connecticut General Statutes §42-158i et seq., provides contractors and suppliers with significant assistance in procuring payment, particularly retainage, on many types of private construction projects. The Act, which applies to private commercial and industrial construction contracts valued at more than $25,000, as well as residential contracts with more than four units, gives courts the power to award a claimant its attorney’s fees, interest and even punitive damages if it is found that payments were “unreasonably withheld” from the contractor or supplier or were withheld in bad faith.
Pursuant to the Act, project owners must pay amounts due for labor and materials within 30 days after receiving a written payment request. The Act also requires that general contractors pay for labor and materials within 30 days after the general contractor receives payments for such labor and materials from the project owner. Should a general contractor fail to make payment to a subcontractor within 30 days of receiving payment for the subcontractor’s work, the subcontractor can set forth its claim against the general contractor through a demand made by certified mail. Ten days after receipt of the demand, the general contractor shall be liable for interest on the amount due at the rate of 1% per month. In addition, the general contractor must place the funds plus interest at the rate of 1% per month, in an interest-bearing escrow account.
Significantly, the Act also establishes a subcontractor’s right to sue a project owner directly for late payments after providing notice of nonpayment to the owner. This provision is very important because it eliminates the problem encountered by many subcontractors with so-called “pay when paid” clauses.
Reprinted with permission. Part II of this article will appear in next week’s eNews on Nov. 15.
If you have any questions about the time period for filing a mechanic’s lien, or would like to file a lien to secure a claim for unpaid work, please call MKRB at 860-522-1243.
Paul R. Fitzgerald, Esq., of Michelson, Kane, Royster & Barger PC in Hartford, Connecticut, practices in the areas of construction and surety law, where he handles a broad range of construction-related matters on behalf of subcontractors, contractors, public and private owners and sureties. Paul has extensive experience litigating cases in state and federal court and has resolved many disputes in arbitration and mediation. He frequently drafts, reviews and negotiates construction contracts.
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New Pacific Trade Deal Isolates US, China
A new trade deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), will create open trade borders for countries in the Pacific beginning Dec. 30. Canada, Mexico, Japan, Singapore, New Zealand and now Australia have all signed a new deal that will bring back many of the same intentions laid out by the Trans-Pacific Partnership—mainly free trade with the 11 countries proposed in the deal—but with a deal that further isolates China and the U.S. from international trade.
The landscape for international trade has been changing dramatically in recent months, notably with the U.S. and China trade wars, Brexit deals and with the United States–Mexico–Canada Agreement. The CPTPP will alter about 13% of the world's gross domestic product, and the deal will likely continue to push China out of the steel market. While China is one of the largest producers of steel in the world, many trade deals have been drafted with intention to keep trade more local, shutting out China from the market and even introducing India as a possible contender for steel trade. NACM Economist Chris Kuehl, Ph.D., attributes this attack on Chinese steel producers to China “not playing by the rules,” citing heavily subsidized industries and possible currency manipulation.
“What [CPTPP] does is isolate China just a little bit more than they already were,” Kuehl said. “Now Europe has been dealing with the same kind of steel and aluminum restrictions on China that the U.S. has. I think it’s kind of part of a longer-term trend of shifting business away from China to get other alternatives.”
Chinese trade aside, the CPTPP also opens new facets of trade not previously available to the countries in the network. Australia, Canada, Mexico, Japan, Singapore, New Zealand, Brunei, Chile, Malaysia, Peru and Vietnam—should the last five countries agree—will all be trade partners for the first time. Opening up borders for trade allows for more opportunities within these nations, shying them away from trading with countries outside of this network.
The trade deal has even caught the attention of the U.K.—a region geographically far from the Pacific—that seeks to potentially join the agreement. With the U.K. leaving the EU, the region is beginning to explore new trade options abroad, according to the U.K.’s Department of International Trade. With key allies Canada, Australia and New Zealand involved, the U.K. has felt more comfortable trying to enter the deal.
The CPTPP is reminiscent of the defunct Trans-Pacific Partnership, yet it eliminates the U.S. entirely from the deal. Negotiation must still take place before the two-month window closes, but the U.S. has and will likely continue to remain outside of the conversation of joining the CPTPP.
“The biggest thing is that the Trans-Pacific Partnership, which everyone thought was dead, is now back, sort of. It has most of the major players in it,” Kuehl said. “There are still those who are negotiating, but I think eventually it’ll end up being the original five [Canada, Mexico, Japan, Singapore and New Zealand] minus the U.S. and possibly now the U.K. And of course the U.S. is a critical player, so it’s not going to be as potent an organization as it might have been.”
—Christie Citranglo, editorial associate
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Know Your Project Type
In the business-to-business credit industry, it is imperative to know your customer. Information is vital for creditors, especially those hoping to be paid in full for products and/or services rendered. There are many different items that need to be considered for credit professionals to do their job to their fullest potential.
For construction creditors, job information is king. The list of items suppliers to a construction project need is potentially infinite. This is where a job information sheet comes in handy as most of the information about the sale can be kept in one place. Among the data construction creditors should be collecting from their customer is full legal name of the company, business address, financial statements, etc. Yet, one of the most important factors or questions a construction creditor can ask themselves is, “What type of project is this and who is the owner?”
Knowing the owner of the construction project tells creditors “what type of security interest you’ll be enforcing,” said Chris Ring of NACM’s Secured Transaction Services (STS). Will it be a mechanic’s lien or bond claim, or is the project subject to the federal Miller Act? Determining who the owner is and what the type of project is can be difficult, particularly without all the right information.
“A notice of commencement (NOC) can help point creditors in the right direction,” Ring continued. However, only a handful of states use this notice (Florida, North Carolina, Ohio, among others). The NOC can pinpoint the type of construction project by its language and the name of the project, such as “city of, county of, state of,” Ring explained. This type of project will generally fall under public, where the property being improved is owned by the state, county or city. Knowing where the money comes from is also important, noted Ring. Public construction projects, such as firehouses and public schools, are not subject to a mechanic’s lien, but rather a bond claim through each states’ Little Miller Act, if such bond exists.
For privately owned projects, the land being improved is generally owned by an individual, partnership or corporation and is subject to each state’s mechanic’s lien statute. Like public projects, private project lien laws vary from state to state and can even differ depending on whether the project is commercial or residential.
There are also those “odd duck” projects, said Ring, such as one under the Port Authority of New York and New Jersey. A Port Authority-owned project can fall under the statute for either state, making the job even harder for creditors. If it’s not clear up front, creditors need to be asking questions. Third-party services, such as NACM’s STS, can also help credit departments find owner information.
For federal projects like a government building, post office or military base, filing a bond claim under the Miller Act will be a creditor’s security interest. Federal projects are not subject to state bond claims or state mechanic’s lien laws. One of the biggest consequences of filing the incorrect type of security interest is losing out on becoming a secured creditor.
Ring said it is possible to file a mechanic’s lien on a public or federal project; however, it will be unenforceable, ultimately leaving a creditor with time lost for filing the wrong documents and missing important deadlines for the correct procedure.
Creditors and companies can even be sued for filing a mechanic’s lien on the wrong parcel or property. This goes back to having all the correct data up front, such as the address of the job site and the type of project.—Michael Miller, managing editor
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