Industry News

How to Get Paid - Level Up Your Construction Billing and Invoicing

Kristen Frisa

We’ll go out on a limb and say paperwork is probably not your favorite daily task. But billing, invoicing, and writing out contracts are all critical to your business's smooth operation. The better you hone these skills, the more likely you are to get paid correctly and on time, and that means better cash flow to take on the next big job.

Sounds good, right? Let's consider how you might improve your billing and invoicing procedures to keep your business building.

Which Construction Billing Model is Right for You?

There is no set format for when or how you can bill your services. You and your clients must establish how and when you'll bill for your project according to how it works best for each project.

Contractors use three broad types of billing schedules to establish payment timelines on a construction project.

1) Advance Billing in Construction

In advance billing, the contractor quotes the client for the project's cost, and the client pays the entire bill before building begins. The contractor gets the advantage of having all the project costs covered ahead of time without needing to foot the bill, but this method has some drawbacks.

Advance billing involves some risk, so it works best when there's an established and trusting relationship between owner and contractor. Things could go awry for the owner if the contractor walks away having done a poor or incomplete job on the project. Conversely, if project costs go beyond the quoted price, the contractor may have to absorb the extra costs, which could eat into profits.

2) Arrears Billing in Construction

At the other end of the spectrum, the owner can wait to make payments until after a project is complete. The practice, known as arrears billing, puts the risk on the contracting company, which floats the project's entire cost until the end. Arrears billing can pinch cash flow reserves, especially if the owner is slow to pay the bill after the project's completion.

3) Progress Billing in Construction

Progress billing, often used in more prolonged or complex projects, sets a specific schedule by which the contractor bills. The timeline for payment turns on how far along the work has come or on predetermined milestones. The owner only sends the final payment after signing off on the project's completion. 

Progress billing allows the contractor to maintain cash flow during a long project but saves the owner from having to put out cash for the entire project upfront. Before agreeing to progress billing, ensure the contract includes detailed definitions for each project stage.

Invoices That Get You Paid

Now that you've decided when to bill your clients, you need to consider how you'll bill. Invoicing with complete, detailed, timely, and professional invoices can make a difference in how quickly you get paid.

When designing your billing system, remember that clients must read and understand your invoices before they're willing to send you any payments. You know how much paperwork crosses the desk in a busy office. Invoices need to be clear about who's billing, what for, and when payment is due for the office staff to make sense of them.

An invoice is also an important business document, so all the pertinent details should show up in a standard format. Should a dispute ever arise, proper invoicing can serve as the paperwork to back up your version of events.

Here are the difference makers to consider when creating your invoices:

1. Include all pertinent business details

2. Your invoices are business documents, and they should look the part. Assign your invoice an invoice number so that you and your client can easily refer to it, and write the word "invoice" on it. Include both sending and receiving business names, addresses, and contact information. Remember always to have a date on your invoice. A specific date reminds you and your client when you sent the invoice and can be a critical part of enforcing payment down the line.

3. Be detailed, thorough, and correct.

4. You won't have the space to detail how many screws you used on a client's drywall project, but you should include a complete description of the services you performed to warrant the bill. Your client should be able to look at the invoice and match it up with work orders and other project documents to reconcile the paperwork.

5. Define short payment terms

6. Include a payment due date on your invoices that's reasonable for your client's payable department to manage. Payment times are typically far too long in construction. Still, your invoices can prescribe a 30-day payment term, incentivizing early payment through a small discount and enforcing a penalty for late payment.

7. Follow up early and often.

8. Never fear becoming the squeaky wheel. If you've sent a timely invoice, but the payment is overdue, send out a payment reminder. AP departments procrastinate too, and your invoice may have just been shuffled to the bottom of a pile. A quick note that payment is past due may spur them into action.

Paying You Should be Easy

Now that you've billed your clients on a predetermined schedule and included all the pertinent details in a standard and easy-to-read format, you'll want to remove any remaining payment barriers for your clients.

Minimize the risk of lost invoices, skip the time delay it takes to create and process checks, and simplify your reminders by using an online payment processor.

With MazumaGo, you can make receivables easy for clients and your staff by

  • Sending electronic payment requests through email directly to your client's AP department
  • Including a link on the invoice that allows clients to pay you directly from their bank accounts with a few mouse clicks
  • Tracking payments so you know when the cash will hit your account
  • Sending reminders to encourage payment on overdue accounts

Ready to set up your payment process to make it as easy as possible for your clients to pay you? Get started with MazumaGo now!