Construction projects involve numerous subcontractors, a wide range of materials, and intricate procedures. Accurate billing ensures prompt remuneration for finished products and services to all stakeholders — from suppliers and contractors to clients. It streamlines the management of finances and encourages better communication and teamwork throughout the project ecosystem. Today, we’ll review everything you need to know about construction invoices to make sure you get payment on time.

Understanding Construction Invoices

Invoices and payment applications are the primary financial tools for building projects to get payments.

Invoices are usually sent out at the end of the project, and payment is made upon receipt. Projects requiring continuous labor use payment applications. For projects where the scope of work is not fully defined at the outset, time and materials invoices are used.

Construction invoices are formal records that list the unpaid balances of finished work, supplies, labor costs, and other pertinent expenses during a specific time frame. Particular specifications of construction billing might change based on several variables. The project’s size, the contract’s terms, and the party presenting the invoice all matter. For example, an invoice from a general contractor (GC) to the owner of a large public project will be less complex than one for a residential project.

Construction bills include a thorough summary of accomplished tasks, used materials, and related work hours, unlike regular invoices that usually only concentrate on the item pricing or service supplied. In addition, development projects frequently include retainage and progress payments. They’re different from regular invoicing procedures used in other sectors.

Essential Elements of a Construction Invoice

Your firm’s cash flow depends on how properly you prepare construction invoices. To begin with, you must determine the basic components for your building invoice. You can use the following or customize them:

  • The company name and address. Include the phone number, email address, legal address, and company name.
  • Client’s name and address. Provide the name and address of the client, as well as other relevant contact details.
  • Detailed report on the finished job. Give a brief and transparent summary of the tasks finished throughout the billing period. This should list the precise activities completed, the benchmarks met, and any modification orders implemented.
  • Breakdown of labor and material costs. List the materials utilized in the project, the unit costs, and the total amount spent.
  • Terms and conditions for payments. Specify the desired billing formats and the date the client must pay in full.

Consider using pre-made invoice templates to save time and preserve consistency. These templates comprise the elements listed above for each project and are easily customizable.

Best Practices for Construction Billing

Accurate construction billing ensures everyone is on the same track. When you give clients a correct record of the job they’ve accomplished, you reduce disagreements and foster confidence. Essentially, it demonstrates what customers are paying for. To stay up-to-date and prevent disagreements, take a look at these practices:

Set clear payment schedules and terms

The construction contract should specify conditions and payment schedules. It should highlight the task’s completion milestones, the accompanying payment amounts, and the deadlines. Clarify how frequently clients must review and approve construction bills before payment is due. Industry standards typically fall between 15 and 30 days. Consider including past-due payment charges to prevent delays and promote early payment.

Keep your documentation in order

Adding supporting evidence to your bills increases their legitimacy and speeds up approval. Include pertinent documentation such as delivery tickets for received items, timesheets of labor hours, and purchase invoices. It provides a method for classifying and archiving all project-related paperwork. Furthermore, it ensures simple retrieval when necessary for preparing invoices or handling possible disputes.

Use construction accounting software

The construction accounting software makes the whole billing procedure more efficient. These applications automate electronic payment processing, project cost tracking, and invoice generation. Many packages feature collaboration capabilities that promote data exchange and communication between project managers, accountants, and subcontractors. This lowers the chance of mistakes and encourages transparency.

How to Write Construction Invoice: Tips for Success

Progress Billing and Retainage

With the progress billing, contractors get paid according to the percentage of completed jobs. It’s advantageous for contractors and owners. Controlled cash outflow helps owners match payments to the status of their projects. Instead of waiting for a single sum payment at the end of the project, contractors get periodic payments throughout. Payments are generally made every month or when specific completion milestones (such as 30%, 60%, or 100%) are reached.

A small portion of each payment — usually 5–10% — is allocated to retainage. It’s withheld as a client security measure to guarantee their satisfaction with the project’s completion. The remaining retainage money is often released after a final inspection and good completion.

You can get paid according to the milestones. Some of them can be:

  • Foundation (after the foundation work is finished).
  • Framing (after the building’s frame was put up).
  • Rough plumbing & electrical (after the electrical and rough plumbing systems have been installed).
  • Final inspection (retainage will be released with the final invoice when the project is finished and the customer accepts it).

Progress billing can lower contractors’ financial risks on intricate projects. As their paychecks are predicated on finished work phases, they get a more equitable division of project expenses. As a result, they can better plan recurring costs and expenditures as the project moves forward.

Payment Procedures and Terms

Due to technological developments, electronic payment systems like wire transfers and ACH payments have increased. They have grown to be the go-to choice because of their speed, security, and affordability, even though wire transfers can be burdensome to both parties. The procedure is simple: the contractor submits an invoice; then, the client authorizes payment via ACH. The transfer directly deposits funds into the contractor’s bank account.

Another payment method is the Early Pay Program (EPP). It assists subcontractors in avoiding expensive debt and enhances cash flow. Essentially, it expedites payments to those with authorized invoices. The procedure is simple:

  • Subcontractors register and submit their first EPP request.
  • The contractor approves the request.
  • The subcontractor gets cash immediately into their bank account 48 hours after signing the contract.

Contractors and subcontractors looking to spruce up their cash flow may find EPPs helpful. It can make it easier to take on new tasks, buy supplies and equipment, make payroll, or pay off high-interest debt.

Utilizing Construction Accounting Software

Accounting software may improve decision-making and increase productivity, all of which contribute to increased profitability. Giving serious thought to the construction accounting software you use is essential. Here are some basic elements that give top priority:

  • Integration of project management. A seamless connection with project management software enables real-time data transmission and cost tracking.
  • Retention management. Keep track of and conveniently handle retainage money while guaranteeing adherence to contractual duties.
  • Subcontractor control. Streamline cooperation and efficiently handle subcontractor payments, invoicing, and lien waivers.
  • Multiple user access. Provide authorized staff with secure access depending on their responsibilities and project requirements.

Adding automatic payment processing to your financial routine can help it run even more smoothly. The program can securely process electronic payments and automatically produce and deliver client invoices. This speeds up cash flow, reduces mistakes, and saves time.

Managing Subcontractors and Billing Procedures

A network of subcontractors is frequently a part of construction projects. Here’s how to make sure that billing procedures flow smoothly throughout this ecosystem:

  • Urge subcontractors to provide invoices in a manner that is compatible with your billing system. It lowers mistakes and simplifies data input.
  • Examine subcontractor invoices closely to ensure they represent actual work and align with the agreed-upon project’s scope.
  • Keep communication open about billing expectations and due dates with subcontractors.
  • Ask subcontractors for all the paperwork to back their bills, including time sheets, material receipts, and lien waivers.
  • If the subcontractor completes work comparable to yours, you may want to look into making compensation contingent on obtaining payment from the client.

Consider paying subcontractors in phases based on the accomplishment of their portion of the project’s milestones, much like how you would invoice the client for work completed. To do that, agree on payment terms with subcontractors, including due dates and any late fines.

Final Words

Construction invoicing is critical to your business’s seamless financial flow. Effectively managing them, though, may be challenging. An external bookkeeper, such as BooksTime, will be helpful here.

BooksTime is ready to assist you with organizing your books and streamlining your billing procedure. Thanks to our professional experience, you can concentrate on what you do best — creating excellent projects — while we take care of the intricate details of construction accounting. Contact BooksTime to find out how we might support your company’s success.