Inventory Accounting

6 Top Invoicing Tips for Construction Professionals

A man uses a tablet to streamline construction invoice processing.

Chances are, your construction company has one mission: building. But whether your business constructs public works, office buildings, or residences, one thing’s for sure: business can’t continue if the bills don’t get paid. That’s why optimizing your construction billing process is so essential to your company’s operations and its bottom line. 

This article we’ll explore some of the best practices for construction invoice processing, leaving you with an actionable list of tips and tricks that can help you get invoicing methods shored up in no time.

 

What is a construction invoice?

A construction invoice is a financial document your company sends to a customer once payment is required for completed work. A step above a purchase agreement, invoices are official documents that articulate an obligation from your customer to pay. Once you create a construction invoice, your accounts receivable will await payment from the customer, ideally within the time frame set by the invoice payment terms.

Typically, invoices—which can be typed up or handwritten—include the following details:

  • Invoice date, number, and reference or memo line
  • Name, addresses, and contract information for both your business and the customer
  • Clear descriptions—plus prices and quantities—of the products and services performed
  • Payment terms

Some businesses will also send backup documentation along with an invoice, including purchase agreements, change orders, work orders, receipts for items purchased on a customer’s behalf, and more. Keep in mind that none of these addendums are official invoices—even if they are official documents. 

Related: A Guide to Storing Construction Materials

 

Construction Billing Process: Best Practices

No two construction companies are quite alike, so there’s no one perfect way to optimize your construction billing methods. Still, the following best practices are a great place to get started.

1. When it comes to invoicing, time is of the essence

The first step to getting paid on time—which is often hard enough already—is invoicing customers as soon as possible. After all, every day you wait to send out your invoice, you’ll wait at least another day to improve your company’s cash flow. 

Decide when you’ll invoice your customers for work completed—that could be weekly, monthly, after a certain amount of money is owed, or even upon completion of an entire project—and stick to that schedule. Remember, you can always invoice for deposits and negotiate other payments along the way. Just remember to send an invoice each time, as a verbal agreement is neither official nor enforceable. 

2. Detailed, readable invoices are key

Ever received an invoice for a huge amount of money, and had no idea what you were actually paying for? It’s not a good feeling. Your customers will appreciate detailed, clear invoices that help them understand what goods and services they’re paying for. Plus, you’ll save yourself from the time and stress of having to gather and send backup documentation to a customer who’s already upset or confused.

So, before you write your next invoice, consider standardizing how you bill customers. This means adopting basic formatting conventions for your invoices, deciding how you’ll date, label, and code different line items, and selecting a consistent way of referencing or attaching backup documentation. Many construction companies use invoicing software to do this.

Another key tip: When referencing or attaching any related quotes, estimates, or change orders, provide signed versions that clarify exactly what your customer agreed to pay for. 

3. Before you invoice, get organized

This might go without saying, but the time to get organized isn’t during billing—but long before. Decide how your business will keep track of all paperwork for its ongoing jobs: physical files, digital files, job numbers? Whatever you decide, be consistent. 

If you use an inventory management software system to track your construction materials, you may be able to use it to help you record what items were used on what jobs, and when. For example, Bilo Heating & Plumbing creates a Sortly “folder” for each job, dragging inventoried items to that folder when they’re checked onto that job site. 

Even if you’re keeping track of inventory consumed using a spreadsheet or a clipboard, you need to keep a paper (or digital) trail of what you use, how much it cost, and how much your customer has agreed to pay for those items. You should also add any other documents—think: subcontractor charges, inspection and permit fees, timesheets—to that folder. 

Remember, documentation is often the only recourse your business will have should a dispute arise with a customer, so it’s worth a extra few minutes to put terms down on paper—and get them signed.  

4. Know exactly how to bill for construction work

You’ve committed to invoicing your customers on time, to standardizing your invoicing process, and to keeping accurate documentation of every job your company is working on. Now, it’s time to put together an invoice. Here’s how some of the most efficient construction companies do it:

Step 1: Verify work is complete

Before you send a customer an invoice, stop and double check that all products and services you’re billing for were delivered and completed. This will make your invoices accurate—and keep your customers happy. Nobody wants to take time out of their day to correct an invoice—not your team, and not your customers. 

Step 2: Review all previous payments and credits

Next, you’ll want to ensure you’re invoicing your customers for the right dollar amount. You’ll want to double check everything, of course. But don’t forget to review all past deposits and credits—they’ll need to be applied to the invoice. If there’s an outstanding balance, you’ll want to enclose those details with the new invoice, too.

Step 3: Comb through your paper trail

You’ve worked diligently throughout construction to create a job file with all necessary documentation: timesheets, receipts, purchase orders, approved estimates. Now, it’s time to audit these items, ensuring they match what’s on your invoice. You’ll want to solve any confusion now, before you submit an invoice to your customer.

Step 4: Double check your customer’s information

You’ll also want to ensure you have accurate contact information for your customers. This will help you get that invoice to the right place in a timely manner. Sometimes, it can be hopeful to call a customer, verify those details, and even let them know an invoice is coming. If nothing else, this phone call or email is just another opportunity to make friendly contact, perhaps helping your invoice get paid sooner. 

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5. Select smart payment terms

Choosing the right payment terms for your company is never simple. You’ll need to balance the needs of your customers against the realities of your own cash flow. For example, a small business that uses up all its cash to finish a job is going to need to collect on an invoice sooner than a big-time builder with a long line of credit.

Many businesses stick with a standard 30-day credit, but the choice is yours. In fact, some businesses choose a one or two-week payment terms, just to keep their debt-to-income ratio low.

With that in mind, this guide to payment terms can help you understand your options. And remember, you can always use incentives to give your customers some time to pay while encouraging them to send that check sooner. Some businesses also include in their terms penalties for late payments.

6. Consider conditional lien waivers

There are plenty of reasons why customers are slow to pay construction invoices. But conditional lien waivers can help you bypass one of the major roadblocks to getting paid on time. If your state permits conditional lien waivers, you can use them to guarantee your customer you won’t charge them twice. And, best of all, your lien is still in place, should there be some kind of problem on the job. 

To clarify, when you offer your customers a conditional waiver, lien rights are not actually waived until payment comes through.  

 

How to Handle Unpaid Construction Invoices

In a perfect world, every one of your customers would pay their construction invoices on time. But, realistically, there will come a time when you’ll need to follow up, sometimes more than once. Here are some tips and tricks to help you collect on invoices while maintaining a friendly relationship with your customers.

Step 1: Follow up

If an invoice sits unpaid for too long, your first course of action should always be a friendly follow-up. After all, things happen. Invoices get lost in the mail, fall into a junk folder, or simply get missed. Give your customers the benefit of the doubt, and send them a reminder to pay. 

Step 2: Apply some pressure

If your customer has ignored your first few requests for payment, you may want to apply a bit more pressure. Follow up again and let them know that if they continue to ignore your payment request, you’ll be contacting your attorney. Remain firm that they must issue payment—but consider giving them some flexible payment options, as long as it won’t cause your business financial harm.

Step 3: Seek help from an attorney, if needed

In extreme cases of unpaid invoices, it may be right to talk to an attorney about how to move forward. This attorney can walk you through your optionsoptions, which could include sending a letter or an intent to lien before escalating to more litigious strategies, such as going to small claims court. Sometimes even a phone call from an attorney is enough to galvanize customers into payment. 

 

About Sortly

Sortly is a top-rated inventory management software system perfect for construction companies of all sizes. You can create a full visual inventory in a few minutes and track thousands of items, assets, tools, pieces of equipment, vehicles, and more. With powerful, time-saving features like customizable reports and the ability to create folders for each job, it’s easy to keep your team organized—even if you’ve got dozens of jobs in progress. 

Ready to see if Sortly works for you? Start a free, two-week trial today.