Construction billing methods & best practices

A cost-plus contract requires you to bill the costs you’ve incurred plus your mark-up per the contract. A percent-complete contract requires you to bill the percentage of the contract that is complete. Make sure that your invoicing covers your cost for the job, overhead expenses, and profit, of course. Review job cost reports, both summary and detailed, to ensure that the costs appear accurate. You won’t be able to catch every mistake, but you can cut down on them significantly by reviewing these reports before you start invoicing. The workflow will include reports, screens, and other data you will need to review before invoicing, as well as the actual steps it takes to create and send an invoice.

• By looking at this report, you can discover which projects had activity, and if they need to be billed or not.
• Later this year, Hendricks Commercial Properties is debuting its first mass timber project, The Grain, just 25 miles outside of Milwaukee.
• One of the most common problems in approving construction invoices is double payment.
• Creating a construction invoice requires keen attention to detail to ensure every aspect of the work done is accurately accounted for and billed.
• Among the myriad of tools and processes at a contractor’s disposal, few are as pivotal as the AIA billing process.

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When the project is in motion, the cost estimates are used to assess whether the project is within budget. If the initial cost estimate is too high, the stakeholders can decide to scale down on the project and fit what they can afford. A labor shortfall is harder to cope with than an equipment shortfall. Therefore, you ideally need the correct number of people with the right skills at the right time to avoid labor fluctuations. After estimating the material and labor resources required, the next step is activity sequencing.

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Some contracts allow for a contingency fund to be set aside to cover unexpected costs throughout the project. By using a contingency fund, the contractor can cover the costs of some changes to the original scope of work. Consider offering discounts for payment within a short time frame or even instantly online. You also might consider construction billing methods offering an incentive for paying cash, which means you won’t have to pay fees to any payment processors, such as a credit card company. Keep reading to learn How to Build a Construction Payment Schedule to protect your cash flow. A construction plan keeps all project stakeholders in the loop from preconstruction to project closeout.

What is a construction invoice?

It does no good to set up a process that is the exact opposite of how your software wants you to do it. The steps in your process should include those that the software recommends, plus any additional documentation or reports you want to run for your own records. Creating invoices manually, whether handwritten or using a template on a computer, can cause errors. Duplicate invoice numbers, not recording or saving invoices that have been sent, and not sending invoices are all problems that can be caused when tracking invoices by hand. Now, these problems can occur when using billing software too, but it is often much easier to spot these problems with the software’s help.

You have to come up with a process not just for billing but for tracking and getting paid. This billing method can be especially risky for the contractor as the construction business is essentially floating the costs of the job. Contractors will have to pay out of pocket for materials and labor and count on their clients to pay fully and on time. However, it’s common for payments in the construction industry to take weeks or months to be sent out. A schedule of values is an important document in the construction industry.

• A third party reviewing the billing may necessitate an onsite review of the work done to date.
• In this article, we embark on a journey to demystify the AIA billing process.
• Owners may offer contractors financial incentives to keep costs low to minimize the uncertainty of cost-plus contracts.
• Beyond the basic project details (like date, percentage complete, etc.), progress billing contracts should also include terms that the client and contractors should agree on before the work begins.

• If you do this, you’ll have a construction billing process that ensures you will have a steady stream of income.
• Then reassess the process every few months to make sure it’s still working and everyone’s still happy with it.
• While a notice of intent to lien is a great payment recovery tool, it’s important that a party who sends one can back up their payment claim with sufficient documentation.
• These invoices also keep record of materials delivered and smaller jobs completed.

To use this method effectively, the contractor must keep highly detailed records of the man-hours and materials used, so the client receives an accurate bill. Other information may be required depending on the project and your billing procedures. To create a construction invoice, you will need to include as standard the name of the project, client, contractor, invoice date & number, project details, T&Cs and monies owed. Depending on your billing method, you may need to include other information alongside this. Progress billing, also known as milestone billing, pays contractors based on the percentage of work they have completed.

Terms Related to the AIA Billing Process

I am reviewing a schedule of value for a project that does not have a % of the project total assigned to project closeout. I have heard the industry standard is 10% of the overall project is given to project closeout. A subcontractor involved early in a multi-year project — for example, a foundation contractor — likely doesn’t want to wait for substantial completion of the project to collect 10% of the contract value.

Construction Invoicing 101: Best Practices and Billing Procedures

Invoices are generally straightforward bills from vendors or contractors on smaller jobs or residential projects. With any luck, billing will be straightforward, including submitting https://www.bookstime.com/ pay applications, invoices, receipts and lien waivers. However, it’s the contractor’s responsibility to understand what backup documentation is required to keep payments coming.