Does the Prompt Payment Act Get You Paid Faster?

If you're a businessman working in the construction industry, you pay close attention to your accounts receivable. You've provided labor or materials for a project and you want to be paid in a timely fashion. Having to wait an unusual amount of time for payment can put a major strain on your cash flow and can disincentives employees and owners alike. So, does the Prompt Payment Act Get You Paid Faster?

Unfortunately, it's common, especially for larger companies, to use their size and negotiating power to extend payment dates later and later. Generally, you'll have a more sophisticated general contractor and large enterprises material suppliers interacting with smaller labor providers. Each of these connections is dealing with the already complicated web of construction contracts and has different incentives and abilities to wait on pay.

To address this, many states have enacted prompt payment acts. These laws require that payments are made down the chain of contractors, from general contractor to subcontractor to materials supplier, within a set time frame. These time frames are short, generally 7-14 days, and they start as soon as payment is received from the level above. So, for example, as soon as the general contractor is paid, he has 1-2 weeks to pay his subcontractors, who then have 1-2 weeks to pay their suppliers. This results in everyone getting paid in a reasonable and timely fashion.

If you're a party down the chain and waiting to receive a payment, it's important to know when payments are due. This can help you make cash flow projections for your construction business. It also means you know when to start debt collection. The prompt payment acts contain very specific and stiff rules that will apply when payment is not made in a timely fashion. For example, if payment is even a day late, some states rules allow you to add on a percentage increase, such as 15% of the total bill, as a late fee. This can be a significant amount of money.

Because these laws and how they're applied vary by state, and sometimes by project type, you want to be sure you're familiar with the version of the prompt payment act that applies to the project and area you're working. If you find the regulations confusing, be sure to reach out to someone who can help.

The attorneys at National Lien & Bond have experience in all 50 states and can help you make sure you're getting paid in a prompt and proper fashion and that you know how quickly you need to pay your own suppliers and subcontractors.