Each day that goes by without turning outstanding receivables into cash is lost profit.

Contractors account for 90% to 95% of Farley's business, and almost half of them specialize in building custom homes. When there is a financial dispute between a builder and a customer, it is common industry practice for suppliers to file liens against the property to cover the cost of unpaid bills for materials. However, local law stipulates that only a party that has a direct contract with the owner of a custom home is allowed to file a lien against that property.

To protect its ability to collect on receivables, Farley has all his custom home builders fill out a contractor form. Information required for the form includes the property owner of record, address and/or plat number and location of the property, name of the financial institution that will be financing the deal, name and license number of the general contractor, name of the title company that is handling the property and more.

"We then request what we call a wraparound agreement, which ties us to the owner of record. It has to be signed by the property owner or owners, and we verify everything-including the signatures-against the documentation we've already compiled." Farley explains.

The wraparound agreement states that the general contractor has elected to have Farley's company supply the materials for this project and what its terms are. It also explains the state's lien laws, the ability to file a lien that the agreement gives to Farley and the company's policy of pre-notifying property owners with a 20-day preliminary notice before taking such action. "We have these agreements all completed and signed before we ship out the first stick," Farley says.

This strategy has also helped Farley's company cement its relationships with contractors. "It protects the builder as well as ourselves," he explains. "If there is ever a hiccup with the homeowner, we go ahead and notify them that we plan to file a lien. Because of the wraparound agreement, they almost always come back and sit down with the builder to get the problem solved. A lot of builders don't have the office staff or infrastructure to do this on their own, so not only are we creating leverage to protect our own cash flow position, we're helping out the contractor."