Keeping the cash flowing is the #1 way to reduce risk on a construction project. Ensuring that all parties are paid in a timely manner keeps the people working, materials flowing, and will prevent those pesky liens. However, often times payments are delayed due to non-compliant invoicing.
Here are some tips to help ensure smooth payment processing.
For owners or developers of construction projects…
Ensure that any specific instructions of your financers are included in your prime contract. Ensure that the contract specifically states what exactly they will approve for payment, when requests can be made, and what documents will need to be submitted. If there is a consultant involved who is required to certify payment requests, ensure they are clear on their role.
For prime contractors….
If this information is not provided by the owner, ask! Before you sign the contract, ask the owner if the invoicing instructions are in line with how payments will be released. Determine if progressive release of holdback will be allowed, or if it will only be released upon completion of the entire project. Find out if there are any specific forms required, and if not, provide a draft format of your own and ask them to ensure it will satisfy for the release of payments.
Once everything has been agreed to, make sure that those requirements are included in your subcontracts, and discuss those requirements in the start-up meeting.
And for subcontractors….
As with the advice to the prime contractor, if the invoicing instructions aren’t provided in your contract, ask! Know exactly how and when you are expected to invoice. Review the contract for change order procedures, and don’t just invoice for “extras” as they arise. Find out if any specific forms are required and provide them with your invoices.
Following the specific invoicing instructions will ensure that there are no hold-ups in the approval process.
Trust me when I say that your clients not only pay attention to how well you perform your work on site, but also how well you perform the administrative functions of your contract. This especially applies to invoicing. If your client has to spend extra time trying to figure out your invoice for the amounts completed on site, change orders, etc. then they will likely not be inclined to keep you on their bidders list. Yes, your client wants a competitive price, but if your paperwork isn’t easy to deal with, that adds unnecessary overhead expenses to their bottom line.
If you have any specific questions, I’m always happy to help.