Disbursement Control Agreement

Even for those who have made their careers as a commercial lender, the payment of construction takes an introduction. Before we explain how it works, we want to explain how this fits into the commercial credit process for construction loans. The involvement of lenders in the interests of construction companies and title insurance is less intuitive. Their interests are coordinated because the lender`s investment is protected by real estate security. Lenders must ensure that no construction company linked to the project has a reason to introduce a pawn fee – a kind of pawn that can take over the lender`s mortgage position in many countries – on the basis of the payment of funds in the construction process. In this sense, the interests of lenders must also be reconciled with those of the title insurance company. When issuing a title policy, the insurance company also wants to ensure that no pawn fee is higher than that of the lender`s mortgage. Controlled payment is a commonly used technique in business cash management, which helps companies monitor and structure their payments while benefiting as much as possible from the interest earned. Controlled payment is used to regulate the daily flow of control by the banking system, usually by suggesting distributions of controls once a day (usually early in the day). This is done to achieve certain investment or fund management objectives.

The disbursement process begins with the conclusion of loans, where three parties – the lender, the borrower and the corporation – sign a payment agreement in which each party`s responsibilities are linked to the documentation, the manner and timing of the funds. There may be a first payment or « drawing » at closing to pay for pre-development costs such as engineering, architecture or soil control. The payment agreement governs the manner, date and conditions of payment of subsidies and must be fully implemented before each payment. Businesses tend to prefer a controlled payment because of the benefits it provides in terms of interest earned. There are two ways to provide them with the interest earned: once the payment funds have been approved, they are generally paid directly to the general contractor or, in certain circumstances, to the subcontractors in the holder`s affidavit, which is part of the drawing documents. The aim is to ensure a timely payment to all parties who are entitled to payment for their work on the project. Monitoring the construction budget is a central facet of construction payments. We really follow everything. If our audit shows that the design is over budget or accompanied by change orders, we notify the lender.

Armed with this information, the lender charges the borrower with the necessary steps to complete the project. Controlled payment is a kind of cash management service that is only available to businesses. The name comes from its function: it allows bank customers to see their expenses or withdrawals daily, which is a controlled period. Controlled payment is generally used to maximize an institution`s available money for investment or debt payment. This will allow excess funds to be invested in the money market for as long as possible. This technique is the opposite approach to disbursement or the flow of the Federal Reserve. Controlled payment allows companies to verify and verify current payments that are on their company bank accounts on a daily basis. This allows companies to maximize cash flow for investment and debt payment. It also gives them the opportunity to make decisions about payments and financing based on assets that have the greatest potential to earn interest. Higher interest rate assets can be left behind for a long period of time to continue to generate profits, while lower assets can be used for immediate or short-term payment requirements.

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