How to Standardize Your Pay App and Required Billing Documentation Processes
In many industries, billing a client is as simple as sending out a one-page invoice with the details of service. But the construction industry requires an entire billing system to document every step of the process. There are a variety of required billing documents needed for every construction job. Any item overlooked or forgotten in this process could delay payment or lead to incomplete payments. Over time, these mistakes can lead to the loss of valuable employees, fewer customers, and a company that's spending more money than what's coming in. A streamlined billing process with a pay app is one of the most crucial steps in maintaining your construction company's accounts receivables.
Construction billing requires a sum of many working parts. Overhead from expensive equipment and supplies, local and state compliance issues, and the necessary insurance to keep everything protected requires considerable cost and a system of required billing documents to keep everything in order. In a credit-heavy industry where slow payments are common, the billing document process must be meticulously maintained.
When it comes to construction billing, invoices are a small piece of the puzzle. While an invoice does provide a written record of what's owed to you, additional required billing documents are also necessary to complete the package. This process is complicated and provides a wealth of opportunities for mistakes. Since all construction companies take care of billing in different manners, you may find that an invoice is part of the billing package or that another document takes the place of an invoice. Typically, construction billing requires a pay app and supporting documents like a project schedule, lien waivers, and a schedule of values.
A pay application (pay app) is like a complicated invoice with an extensive list of details about the project. The pay app generally includes a list of required billing documents that support the claims. Standard forms exist to make this process easier. But they can be complicated, and a mistake means starting all over again. When you consider that contractors and subcontractors are already waiting an average of 96 days for payment, starting over isn't an attractive option. Creating a checklist for the billing process is one way to ensure no details are missed. It also ensures payments will be correct and on time.
4 Construction Billing Documents Your Construction Company Should Standardize
Creating templates or standardized documents for your construction company's billing process can help ensure that no steps are overlooked in the process. Even contractors familiar with the process can make mistakes because of confusing language on forms or documents that change from one job to the next. Improperly completed documents can lead to late or incomplete payments. They can also delay work in a progress billing situation. Consider creating standardized forms for the following construction company required billing documents.
1. Pay Applications
Every construction job includes a pay application, or pay app. Construction projects use progress billing when payments spread out over the course of the job, and a pay app organizes the information. While templates of the complicated documents exist, they're typically primitive, confusing, and could be missing important elements. The most widely known pay app forms are documents from the American Institute of Architects (AIA).
Your pay app will require detailed information, including:
- The name of the project and property owner
- The pay app number
- Dates covered by the pay app
- Original contract amount
- Sum of approved changed orders
- Total value of work completed and materials stored on-site
- Amount retained from work performed
- Total amount earned
- Total amount received
- Amount due
- Total balance remaining
When the information is complete, the pay app will need to be certified by the direct contractor and the architect. Users can also include additional materials with the pay app, like photo documentation, diagrams, invoices, and receipts.
Why Standardize Your Pay App?
A pay app requires a lot of information from different sources. Providing a standardized checklist helps eliminate the potential for mistakes. Standardized pay app templates also provide a recognizable document that's easier to fill out and quickly get the necessary certification.
2. Lien Waivers
This document is a standard required billing document that supports most pay app needs. Any party providing materials, labor, or services can file a mechanics lien or bond claim in the event they don't get paid. A lien waiver waives an individual's right to file a lien after payment. It serves as a type of receipt in the construction industry. Every time someone makes a payment on a construction project, the person receiving the payment signs a lien waiver for the amount paid. Lien waivers should come with every pay app to represent proof of amounts paid to date on the project.
Why Standardize Your Lien Waivers?
On most projects, the general contractor holds the responsibility of tracking and collecting lien waivers from everyone on the job after payment. This can include contractors, subcontractors, material suppliers, equipment rental companies, or any other parties submitting a pay app who are subject to the lien claimant. Keeping track of these documents can be challenging without a checklist to keep track of every party involved. Standardized lien waivers give every contractor and subcontractor a convenient way to include the document with their pay app automatically and avoid delaying payment due to waiting for orders from someone higher up the chain.
3. Schedule of Values
A detailed overview of the project is essential to clarify the claims in the pay app. A schedule of values breaks down all of the work on a project. Each item has an assigned monetary value. While it would seem simple to create a list of broad terms, a schedule of values should list every step of the process. Each item on the list will include the cost, the details of the subcontractor who performed the job, and a time value. Payroll records may also be required to justify the expenses listed in the pay app.
Why Standardize your Schedule of Values?
A schedule of values must justify the values listed in a pay app. Having a standardized form provides an easy way for subcontractors to keep up with each job and the time and materials that must be listed.
4. Purchase Orders
In the construction industry, it's necessary to obtain a lengthy list of supplies to complete any job. The client must agree to the terms of these orders before they occur. Invoices are a record of receipt of products or services and the cost. Purchase orders are a record of the customer's orders. Purchase orders reflect the customer's order afterward and are included with invoices to match pre-project estimates with final costs.
Why Standardize your Purchase Orders?
Purchase orders are essential to finalize construction projects that occur over time. If there are any questions or issues surrounding costs, then purchase orders serve as proof that the company met the customer's expectations. Standardized purchase orders streamline the process for easier billing.
3 Ways to Streamline your Construction Billing Process
Construction billing is an intricate process that takes place over an extended period of time. Standardized required billing documents and pay app processes help companies avoid mistakes and oversights that delay payment. Still, payments for construction processes are often delayed for other reasons as well. Streamlining your billing process in other ways can lead to faster payments.
1. Document Everything
Construction projects take place over a period of time, with multiple teams completing different services. Anything that isn't documented is easily forgotten, or worse, become a point of contention during pay app submission. It won't be easy to make claims of services completed or additional costs if the items aren't properly listed with receipts. So documentation is necessary to validate prices and payment terms.
2. Consider Construction Billing Software for Pay App Management
Standardized documents and a good pay app make billing easier. Accessing these customized documents through a software program designed for the construction industry also streamlines the process of completing, signing, and submitting documents. A software program can simplify the entire billing process with options to:
- Send Reminders About Pay App Submissions: Send billing reminders to contractors and subcontractors who haven't submitted a pay app within the pay period with one click.
- Collect Documents: Receive, review, and store every document, pay app, and lien waiver.
- Approve Every Pay App: Approve or decline each pay app. You can also e-sign documents with a few clicks for quicker billing.
- Bill and Generate Reports: Export your project budget as a spreadsheet so you can update payables accounts.
3. Send Conditional Lien Waivers With Every Pay App
Lien waivers are typically a vital part of every pay app. Still, they are often not included until required. This means a pay app without the inclusion of a lien waiver may be declined. Conditional lien waivers provide a way for contractors and subcontractors to sign off on partial payments that occur during progress payments. Conditional lien waivers also assure the property owner or contract manager that they won't pay twice. They also allow contractors and subcontractors to receive payment promptly.
Construction billing is a complicated process with ample room for mistakes. However, standardizing the required billing documents and pay apps processes can help reduce the chance for error. This leads to accurate, on-time billing. Providing options for every contractor and subcontractor to access the documents they need can lead to a painless billing system that saves your team hours of time during each payment process.