By Diane Dennis
Joint check agreements could be exactly what you need if you don't have good credit, or a high enough credit line, or if you can't afford to pay those high bills for materials before you yourself get paid.
Typically what happens is the Subcontractor fills out the joint check agreement and then faxes or emails it to the Direct Contractor. The DC then sends the signed form back to the Subcontractor who then forwards the completed form to their supplier. The supplier(s) will sign it and send it back to the Subcontractor who will then send a completely signed copy to his Direct Contractor. Everybody has a copy for his or her records.
When joint checks are used you'll be paid slightly differently on the project. Your payment check from your Direct Contractor (or customer if you are a Direct Contractor) will be a joint check between you and your supplier.
Sometimes the check will be for the full amount of your payment and sometimes there will be a check(s) for your supplier(s) that is joint between you and them and then another check made out to you for the balance of your invoice.
This allows the Subcontractor to keep moving forward on the project instead of being shut down because he can't afford to purchase the materials upfront.
When the Subcontractor receives the joint check that is for the entire amount of his invoice he'll endorse it and give it to his supplier for them to endorse and deposit to their own account.
Once the check clears the issuing bank then the supplier cuts a check back to the Subcontractor for the balance of the joint payment (the amount of the joint check minus the money owed on the materials).
When the Subcontractor receives a joint check that is strictly for the materials then he'll endorse the check and send it to his supplier who will deposit it to their account and that pays the Subcontractor's material bill(s) for that portion of the project.
It can be tricky to figure out how to balance your books when you're working with joint checks. It would be best to consult an accountant or if you're using a program such as QuickBooks to track your business finances then a specialist for that particular program would be a good person to check with.
Don't be afraid to ask your supplier if he/she will consider working this way with you. They are protected in that they can (and should whether using a joint check system or not) file a preliminary notice on the project, thereby clearing the way to file a lien on a project if the general contractor does not pay timely.
It's a win-win for your customer and your supplier because the supplier now has no worries that they won't get paid for the materials and the Subcontractor's customer has the comfort from knowing that.
* All of the above having been said, the banking industry is becoming tighter in how they handle these types of transactions so it would be a good idea for anyone considering joint checks to check with their banks to find out what will be required in order to deposit the checks (for example special checking accounts; signature of joint payee in person; etc.).
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