5 Construction Billing Methods & When to Use Them

If you want to see how these are represented on actual invoices, take a look through some of our construction invoice templates. Consider offering discounts for payment within a short time frame or even instantly online. You also might consider 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. If you are wondering about how to bill your clients for your construction business, then here we will walk you construction invoice through the 7 best methods for it.

Common Mistakes to Avoid When Using QuickBooks

If you’d like further information about invoicing clients, check out our tips to manage your invoices and take a look at our advice for how you can get paid fast. Unclear payment terms income statement can have a significant impact on projects and erode customer trust. Everything from acceptable payment methods, payment timeline, and late fees should all be communicated clearly. If you want your clients to pay within seven days, you need to make sure you state this on your invoice. If there are consequences for late payment, such as a 5% increase per week, this needs to be made abundantly clear as well. This percentage is calculated by dividing costs incurred to date by estimated total project costs.

Upload the project budget using your own cost codes, and follow the financial progress in real-time

• AvidXchange offers integration with over 100 other accounting systems, including popular options like NetSuite, Blackbaud, Microsoft Dynamics, Intacct, MRI, and QuickBooks.
• Those relying on third-party reporting software might experience frustration when integrating data.
• Delays in rolling out new software can create chaos, and I wouldn’t want to deal with that while managing active projects.
• In most cases, general contractors will need to keep record of and submit all of the invoices that other contractors, subs, or suppliers have sent them in order to receive the cash to pay those invoices.
• This will allow you to easily reconcile your accounts, track transactions, and manage your cash flow.
• Getting everyone together to discuss billing at the beginning of a project is enormously helpful.

And one of the reasons behind this is the lack of awareness of the various construction billing methods. Billing disputes can happen, but you can avoid them by ensuring that your invoices offer as much detail as possible. Detailed invoices start with maintaining detailed records of the money spent on labor and materials. Most contractors prefer this method when dealing with large, long-term projects to ensure that some form of payment is regularly received. In addition, you gain some protection against clients who may pay late or not at all. When push comes to shove, it’s important that a construction business understands what tools are available to help recover payment.

Payment applications

Reducing paperwork and enforcing a structured submission HVAC Bookkeeping process helps subcontractors get their applications right the first time. Automated tracking of invoices and payments would also be useful in avoiding missed or duplicate payments, which can be a common issue in construction accounting. The success of a construction project depends on selecting the appropriate billing procedure. When selecting a billing method, it is important to consider factors such as project scope, client preferences, and financial management strategy. Contractors can ensure accurate billing, reduce client disputes, and maintain profitability using the right billing methods.

Captured invoice information can show payment status throughout the process, providing a clear audit trail for your records. AvidXchange’s complete visibility into invoice status makes it easy even for busy general contractors to know who owes money and when. With automated updates, management can effectively report on all accounts paid or outstanding. Moon Invoice offers payment reminders, which can help ensure that invoices are paid on time.

• I don’t like that certain actions, like generating reports or entering transactions quickly, can cause noticeable delays.
• The contract should specify whether progress billing, lump sum payments, retention booking, or another method will be used.
• The fee may be calculated as a percentage of the total contract cost or a fixed fee set at the beginning of the project.
• Here are some of the best practices that you should consider for your construction projects.
• If a company is used to working with a particular reporting format, this limitation could add extra work.I don’t like Spectrum’s lack of proper multi-screen support.
• If you’re not properly tracking the costs for each project, you’re flying blind when it comes to profitability.

Use The Right Construction Billing Methods

To ensure accurate and timely payments, it’s essential to grasp the different billing models employed in the construction industry. Both arrears and lump sum billing methods are preferred for short-term construction projects since there is a shorter turnaround between completion and payment. Progress billing and cost-plus are usually reserved for larger projects, which will need a regular influx of cash to cover all expenses. This article will compare the most common construction billing methods, which projects best suit each — and suggest some billing best practices to help get contractors paid on time. Construction accounting is recorded using job costing, tracking expenses and revenue for each project separately.

Contracts, Change Orders, Liens

Invoices can get lost or forgotten, and following up with an email or a quick phone call helps remind clients of upcoming or missed due dates. Software with invoicing tools can help you track payment due dates, which will help you determine the best times to contact clients to remind them to make payments. Making payment demands shouldn’t be the first step when payment is a little late, but it could become necessary. Keep in mind though – owners and customers don’t typically take kindly to lien threats. 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.

A set price is agreed upon and paid in a single instalment – either before the project begins or after completion. Click here If you want to skip straight to our free construction invoice templates. Here are some of the best practices that you should consider for your construction projects. Like every other industry, the construction industry is also back on track post-pandemic.

Use professional construction software

When using the time and material method, multiple changes to the order can be made during the construction process. Depending on the contract, a contractor may choose to mark up the cost of the materials to increase their profit margin. This method is best for small subcontractor jobs and self-perform work. Cost-plus billing reimburses contractors for actual project costs plus a pre-agreed percentage for profit.