The billing process in construction
As a subcontractor working with a construction company, there are several steps you can take to ensure that you get paid for your work
Have a written contract
An email with words approval or proceed can work. A contract is normally sent from construction company to subcontractor and the sub must sign. Or a project decision maker can sign your proposal. You will need proof that this contract is yours when billing.
Submit accurate invoices
Construction billing works on Percentage of Completion. You can only bill per what you have completed on site. For example, if a construction project has an estimated total cost of $1,000,000 and $500,000 of costs have been incurred to date, the percentage of completion would be 50% (500,000/1,000,000).
Schedule of Values: SoV
An SOV is created and added to a contract. It is a a key reference document for invoicing on the project. Invoices are typically submitted based on the progress of work completed on the project, as outlined in the SoV. Tax should be included in your bid amount and you will need to breakdown sections of the building equaling your total billing amount. If you are allowed to make your own SOV- try to include the larger amounts at the beginning of the job, so you can bill for larger amounts earlier.
Billing period timeframe
Generally, construction companies will bill their clients on a monthly basis for work completed during that month. At the end of the billing period, the company will generate an invoice and send it to the customer, requesting payment for the services rendered or products delivered. The billing period is normally for 5 days towards month end.
Retainage
The practice of withholding a portion (10%) of a payment due to a contractor or subcontractor until the completion of a project. Can take up to 1 year to receive retainage. The general contractor wants to wait until receiving their final payment before releasing retainage. You can always ask to receive retainage earlier.
Creating your own invoice
There are many invoicing systems available for small businesses, both paid and free. Here are a few popular options: QuickBooks, FreshBooks, Wave, Zoho Invoice, Xero, PayPal, and Square.
Payment Management systems
These systems streamline the payment process by automating the invoicing and payment approval process, reducing errors and delays. Examples are Textura, GCPay, AvidXchange, Payapps, Complēt Contractor, and InvoiceMeister.
- Pay application documents are automatically generated, electronically signed, and available online for review and approval
- Payments are made electronically, resulting in faster access to funds
- Compliance documents can be submitted and tracked online.
The wait time to be paid by a general contractor
30 days, 60 days, or even longer to receive payment. General contractors to require payment from the project owner before paying subcontractors. This means that subcontractors may need to wait for the general contractor to receive payment before they receive payment for their work.
The accounts payable department
A/P is responsible for managing the company's financial obligations to its vendors, suppliers, and service providers. This includes receiving, processing, and paying invoices in a timely manner.
Notarization of lien waivers
Contractors, subcontractors, and material suppliers may be required to sign a lien waiver in exchange for payment. It is common for construction industry participants to have them notarized as a way to ensure that the signature on the document is valid and the signer's identity has been verified. 3 main documents are required before payment (sworn statement, invoice, and conditional lien waiver, and 1 document ( Unconditional Lien Waiver) after you have received the last payment.
Payment hold release
The release of a compliance hold on documents can be facilitated through a payment application by the project's general contractor. Payment holds are associated with a specific contract number pertaining to the project, and their release is dependent on the status of compliance and documentation. The payment management systems such as Textura are responsible for overseeing this entire process.
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