Perspectives
Before You Finance: Six Project Questions That Can Protect Your Right to Get Paid
Experienced credit professionals know that approving a customer and approving a transaction aren’t necessarily the same decision.
A contractor may have years of history with your dealership, a healthy credit line, and a solid payment record. But a new equipment transaction can introduce risks that aren’t visible on a traditional credit report.
The project may be in a different state. The customer may be working several tiers below the general contractor. The equipment may be going to a public project instead of private property. Or the transaction may carry lien or bond rights that are valuable today-but can disappear if a notice deadlines passes.
That’s why project intelligence belongs alongside customer credit analysis.
The goal isn’t simply to answer, “Will this customer pay?” it’s also to understand, “if they don’t, what leverage will we have?”.
Here are six questions to deliberate when extending credit for new jobs or equipment:
1. Where is the equipment actually going?
The project address does more than tell you where to deliver the equipment. It identifies the legal environment surrounding the transaction. Mechanic’s lien laws, public-project bond requirements, preliminary notices, filing deadlines, eligible claimants, waiver rules, and enforcement procedures can vary significantly by state. Even experienced multistate credit departments can create exposure when a familiar customer begins working in an unfamiliar jurisdiction.
The project location can also help the credit team verify information independently. With a correct and detailed project address, you may be able to confirm property ownership, identify recorded project documents, locate notices of commencement where applicable, determine the general contractor, and verify other information provided by the customer.
That makes the project address a starting point for due diligence, not simply another field in the credit file.
Why it Matters to the Credit Decision
Consider a customer with a $750,000 credit line that historically operates in three states. The customer takes on a major project in a fourth state and requests another $300,000 in availability. The customer’s financial profile may not have changed, but the dealer’s risk profile has.
Before approving the additional exposure, the credit team should understand whether the new jurisdiction provides meaningful lien or bond protection, whether notices are required, and whether those requirements can be realistically met.
What the Credit Team Should Capture
Don’t settle for a project nickname or city. Capture the following:
- Complete project name
- Physical project address
- County, where relevant
- State
- Project or contract number, if available
- Expected first furnishing/delivery date
- Expected duration of the dealer’s involvement
The last two points are especially important. Location tells you which rules may apply; furnishing dates often start or affect the clock.
2. Is This a Public or Private Project-and What Does that Mean for Our Recovery Strategy?
“Public or private?” shouldn’t simply be a checked box on a job-information form. It is an early determination of where the dealer may look for payment protection if the customer fails.
On qualifying private projects, mechanic’s lien rights may provide a potential claim connected to the improved real property. On public projects, government property generally cannot be encumbered in the same manner, making statutory payment payment bonds or other payment protections particularly important.
For federal construction projects, for example, the Miller Act establishes payment-bond protections for qualifying parties, while states have their own statutes governing state and local public projects. The requirements, and the parties protected, are not identical everywhere.
Why it Matters to the Credit Decision
Think about what this means from a recovery perspective. If you’re extending $400,000 on a private project, the credit team may be evaluating:
Customer credit + guaranty + potential lien rights + other security
On a public project, the analysis may instead be:
Customer credit + guaranty + payment bond + other security
That distinction can change the quality of the exposure.
Simply knowing that a project is “bonded” isn’t enough either. The credit team should understand which bond, issued by whom, for whose benefit, and whether the dealer’s position in the contracting chain potentially falls within the protection of the applicable statute or bond.
What the Credit Team Should Capture
For public work, obtain available information about:
- Public contracting entity
- Prime contractor
- Contract number
- Payment bond
- Surety
- Bond number
- Principal identified on the bond
- Contracting chain between the dealer and prime contractor
Ideally, this happens when the account is current.
Trying to locate a bond for the first time after a contractor has stopped communicating puts the credit department in a very different position.
3. Who Owns the Project-and Have We Verified It?
Ownership information can also reveal useful risk intelligence. Suppose the customer identifies “ABC Manufacturing” as the owner because that’s the name on the building. Further research shows that the property is actually owned by ABC Industrial Development LLC, while ABC Manufacturing is the tenant.
Now there are additional questions:
Was the work authorized by the owner? Who contracted for the improvement? What interest in the property is actually being improved? Are notices being directed to the correct parties?
Those are much better questions to discover when the equipment is first supplied than when a lien deadline is approaching.
What the Credit Team Should Do
For meaningful exposure, verify rather than assume.
Depending on the jurisdiction and project, that may involve reviewing property records, project documents, notices of commencement, permits, contracts, or other reliable sources. The goal isn’t for the credit department to perform a legal title examination. It’s to recognize when the project information doesn’t line up-and escalate the issue while there is still time to investigate it.
4. Where Exactly Does Our Customer Sit in the Contracting Chain
This is one of the most important-and most frequently underestimated-pieces of construction credit intelligence. Knowing that your customer is “a contractor on the project” isn’t enough. You need to know who hired them.
Consider:
Owner -GC-Your Customer-Dealer
versus
Owner-GC-Subcontractor-Your Customer- Dealer
verus
Owner-GC-Subcontractor-Supplier-Your Customer-Dealer
versus
Owner-GC-Subcontractor-Supplier-Your Customer-Dealer
From a traditional customer-credit perspective, the exposure might look identical. From a lien or bond perspective, it may be very different.
Some statutes limit protection as parties become more remote from the owner or prime contractor. Supplier-to-supplier relationships can be particularly important to identify. On federal projects, for example, Miller Act protection does not extend indefinitely down the contracting chain.
Why It Matters Beyond Lien Rights
The contracting chain also tells the credit professional something about payment risk itself.
Money generally has to move through the parties above your customer before reaching your customer-and ultimately you. That means your customer’s payment performance can be affected by a dispute they aren’t even directly involved in.
A problem between the owner and GC can move downstream. So can a GC/subcontractor dispute, change-order disagreement, project delay, retainage issue, or insolvency elsewhere in the chain.
Your customer may still be financially healthy while the project’s payment chain is not.
What the Credit Team Should Capture
Identify:
Owner-Prime/GC-First Tier Subcontractor-Lower Tier Contractor-Customer-Dealer
Then ask one additional question:
Who is paying whom?
That simple question helps distinguish the contractual relationship from the physical jobsite relationship.
5. What exactly are we furnishing—and how much of the exposure may actually be protected?
This deserves more scrutiny for an equipment dealer than it might for a traditional building-material supplier.
A CAT dealer’s exposure on one project could include:
- Equipment purchases
- Rental equipment
- Replacement parts
- Repairs
- Field service
- Labor
- Attachments
- Consumables
- Transportation
- Freight
- Other charges
It can be tempting to look at a $600,000 project receivable and think:
“We have lien rights on this job.”
The more useful credit question is:
“How much of this $600,000 exposure potentially qualifies for lien or bond protection?”
Those aren’t necessarily the same number.
Whether equipment, rental charges, parts, services, or other costs qualify can depend on the applicable statute, how they were furnished, their connection to the improvement, and other project-specific facts. Construction-credit guidance likewise emphasizes that what is lienable—and how far down the contractual chain protection extends—varies by state.
Why it matters to the credit decision
This gives the credit manager a much better way to think about concentration.
Instead of:
Project exposure: $600,000
consider:
Total exposure: $600,000
Potentially protected exposure: $375,000
Potentially unsecured/uncertain exposure: $225,000
Those numbers are illustrative, but the exercise matters.
The credit team can now make a more informed decision about whether the remaining risk is acceptable—or whether it warrants a lower credit limit, additional guaranty, deposit, joint-check arrangement, UCC security interest, different payment terms, or another form of protection.
Lien rights should be viewed as one layer of the credit-risk structure, not as a substitute for underwriting.
6. What has to happen now to preserve options later?
This is where sophisticated construction credit departments distinguish themselves.
Traditional collections processes are usually delinquency driven:
Invoice-Due Date-Past Due-Collection Activity-Legal Escalation
Lien and bond rights don’t necessarily operate on that timeline. Rights-preservation requirements can be triggered by events such as first furnishing, last furnishing, project completion, recording of certain project documents, or other statutory events. That means the account could be completely current while an important legal deadline is running.
Preliminary notices are a good example. Depending on the jurisdiction and claimant’s position, a notice may be a prerequisite to later lien or bond rights, and notice requirements vary substantially among states.
Why it matters to the credit decision
The aging report answers:
“Who owes us money right now?”
A rights-management system should answer:
“Where do we have exposure today that requires action to preserve our options tomorrow?”
Those are fundamentally different reports.
A customer could have:
$0 past due
and simultaneously have:
$1.2 million in project exposure with a notice deadline approaching.
From a legal-risk perspective, the second number may deserve far more attention.
Build two clocks
For significant construction exposure, credit departments should consider tracking two parallel timelines:
The Credit Clock
Invoice-Due Date-Aging-Credit Hold-Collections-Legal
The Rights Clock
First furnishing-Preliminary Notice-Ongoing Project Monitoring-Last Furnishing-Lien/Bond Deadline-Enforcement Deadline
The two timelines eventually intersect-but they shouldn’t depend on one another.
If the rights clock doesn’t start until the credit clock shows trouble, the dealer may already have lost valuable leverage.
The Bigger Question: What Does the Project Do to the Risk?
The purpose of gathering project information isn’t to make the credit application longer. It’s to make the credit decision better.
For every meaningful construction exposure, the credit team should ultimately be able to answer four questions:
1. What is our total exposure?
2. Where does that exposure sit within the project’s payment chain?
3. What portion may be supported by lien, bond, UCC, guaranty, or other rights?
4. What must we do—and by what date—to preserve those protections?
That creates a much more complete view than customer creditworthiness alone.
Because when a construction account deteriorates, the most important question isn’t simply how much the customer owes.
It’s how much leverage you preserved before they stopped paying.