Having a historical data set means you can adequately plan for and budget each job. A construction billing method is used by construction contractors to notify their clients about the payment that is due for the work. As the name suggests, builders working under time and materials contracts, charge their clients based on the actual time spent on the project and the materials used. This method can be helpful for projects with uncertain or fluid scopes, where it is difficult to estimate the total cost beforehand accurately. Other than the scope of the project, the billing method primarily depends on your preferences.

AIA-style progress billing method

This makes cost-plus contracts a budget-friendly option for project owners looking to reign in budgets. Achieving full visibility into your invoicing process is effortless with Billing Link®️. The software consolidates all your invoices in one centralized location, providing a comprehensive overview at a glance.

• There were so many pieces of information flying back and forth that were not approved on paper, that things got lost.
• However, the contractor may underestimate the project’s cost, leading to financial loss.
• And the projects tend to be completed over a lengthier period than a one-off consumer transaction.
• That’s the owner’s safety net of making sure that the project is completely done and ready to go for their use.
• Like many aspects of construction, the advantages and challenges of progress billing are dependent on the perspective of the owner or the contractor.
• You can track the time spent on a project and automatically generate invoices based on the hours worked.

What Is an AIA Application?

Automation means less work for your team, reduces the chance of human error, and will help speed up the process. Each month look at the calendar and note the specific dates that you will be performing your billings, accounting for weekends and holidays. Those on the billing team shouldn’t schedule job walks, bids, meetings, or other tasks during this time. Once you have some experience and know how long the process will take, you can tighten the schedule accordingly.

Supporting Documentation

Understanding which billing method works for which project can be a critical factor to its success. This is necessary no matter which construction billing method you’re using. Clients, especially in the age of internet research, want to know where all their money is going. Keep learning and explore our guide on How to Make a Construction Invoice or How to Do a Construction Change Order to ensure you get compensated for every expense. Now that you’ve learned about the five options for the construction billing process, you’re probably wondering which is the right one for your business.

Depending on contract stipulations, payment terms may allow for 30, 60 or 90 days between billing and payment. General contractors should ensure that whatever payment terms they receive are mirrored in the contracts https://www.bookstime.com/ with their subcontractors. Having to pay a subcontractor within 30 days when a progress payment may not come for another two months could impact cash flow and prove detrimental to the project as a whole.

• A well-structured invoice provides a clear breakdown of all charges, which is important for transparent communication.
• Choosing the right billing method is essential to ensure accurate billing, reduce disputes, and maintain profitability.
• This invoicing practice creates a strong financial incentive for contractors to hit milestones on time and meet specifications before they receive payment.
• The construction industry is notorious for slow payments, costly overhead, and relying on credit to keep a project moving forward.
• Cost-plus contracts involve the contractor billing the owner for each cost that goes into the project, as well as a fee to cover the contractor’s overhead and profit.

Billing Practices For Construction Companies

Often, a pencil requisition is used  in advance of the formal payment application to get preliminary confirmation of the billing format and itemized list of expenses. Obviously, that’s much quicker than the industry norm, and payment won’t come that fast for the majority of construction businesses. Still – don’t be afraid to ask for better payment terms, and don’t get pushed into accepting overly-burdensome construction invoice payment terms. Building trust and a collaborative relationship with your customer will help on the path toward securing better terms. Contractors should include all approved change orders that are invoiced in the current billing cycle along with the payment application. The amounts of each change order should also be reflected in the schedule of values or continuation sheet.

The Completed Contract Method of Accounting in Construction

• Construction contracts will indicate what counts as “completion,” as this may vary based on the project type.
• Easy-to-understand invoices are fundamental in establishing sound financial practices and nurturing strong, trust-filled client relationships.
• Creating a construction invoice requires keen attention to detail to ensure every aspect of the work done is accurately accounted for and billed.
• Efficient billing practices contribute to healthy cash flow, positive client relationships and successful project outcomes.
• Secondly, construction invoices are invaluable in financial record-keeping, enabling businesses to track income and expenses accurately for reporting and tax purposes.