How to solve construction billing issues in 2023
The construction industry is notorious for late payments, endless paperwork and poor communication. Since construction projects take place over an extended period of time, it’s important to keep your processes streamlined, and improving your billing process can be the best place to start.
Construction billing differs from business to business, but one thing remains true – there’s power in using a construction billing software. The ability to run your entire process through software will change your business for the better. Follow these tips to help you reduce late payments, minimize paperwork and make your construction billing process more efficient.
What is construction billing?
Construction billing documents an expense for your company. A bill is any payment you owe to your partnering parties like expenses for materials, equipment or services. Billing in construction is similar to purchase orders, but billing is a quicker way to record an expense and get that expense paid in full.
What makes construction billing challenging?
Billing processes in construction can be tricky. When dealing with money, strict timelines and multiple parties, it’s bound to be difficult to manage. Be aware of these specific challenges of construction billing so you can combat them and keep your business running smoothly. Here are the top hurdles home builders face with construction billing:
Too much paperwork
To keep a high-functioning business, you must keep track of your payments. It’s challenging when all your bills pile up on your desk. With construction billing software like Buildertrend, you can maintain a record of expenses that can be accessed easily from anywhere. No more lost receipts in the trucks of your field crew because they can upload them as soon as they buy any materials. This eliminates the need to track down receipts and paper bills and unifies your team.
Late payments from clients
Dealing with late payments from homeowners can deeply affect your billing process. If you’re waiting on payments, you take on the costs, and you’re forced to pay out-of-pocket for materials and labor. By staying ahead with financial features in construction software, you can combat problems before they arise. With Buildertrend’s software, you also have a construction invoicing feature to communicate costs with clients through a formal document.
Poor change order management
Clients can change their minds pretty frequently, and you can also run into issues at your job site. It’s just the name of the game. When change orders happen, you need an easy way to track these expenses, which is where an online billing system comes in handy. All changes are recorded on the platform, where you can sort through extra charges. Without proper documentation, you risk getting underpaid for the job.
Temptation to pay bills too early
A construction company has many monthly bills from subcontractors and vendors and bills for materials and equipment. Paying bills ahead of time can be beneficial, but be aware you could limit cash flow by paying bills too early. For example, if you pay a subcontractor before you get paid by a client, you’re placing the financial burden on yourself.
Partnering with other parties
Billing for construction projects can be tricky when working with other parties. Often, construction companies will source work from subcontractors. This is an inevitable risk that a company will have. If any partner fails to complete their obligation or backs out of the project, the job will be put at risk. To combat this, you’ll need to create a contract or purchase order in a software like Buildertrend.
5 construction billing best practices for 2023
How is billing done in construction when there are so many challenges? Don’t worry – it can be done successfully. Use these construction billing best practices to keep your billing process effortless and organized.
1. Document everything
Keeping a record of all your bills is important, especially in construction. Sometimes you need to reference back to old bills and receipts. Within a construction billing software like Buildertrend, you have the option to record who you’re paying and what the bill is for. You’re able to record the invoice date and a reminder to pay the bill at a later date if needed. You can also attach photos or files to the bill, like a picture of a receipt. This process ensures everything you need to reference is in one place.
2. Run reports at regular increments
By running reports regularly, you can achieve accurate cash flow projection. You can create a variety of construction reports in Buildertrend to manage your bills. Helpful reports include estimated cost vs. actual cost, cash flow by job and work in progress reports which include how much money is left to spend on each job. There are also billing filters that can be saved and used repeatedly to make the process quick and easy. Use these filters to track due dates and know how much is due at any time.
You also have the power to see where you’re over budget frequently and overages on bills. With construction billing codes, you can run reports on how much you’ve been over budget and target any specific patterns across projects. Learn more about the power of variance codes and financial reporting in Buildertrend with this webisode.
3. Set regular payment schedule
Set specific days of the month or week that you’ll take care of your bills. If bills require a different due date, schedule them using a construction billing software like Buildertrend.
DMJ Restorations has tightened up their financial process with help from Buildertrend’s Scheduling feature which sends bill and purchase order notifications. This ensures they don’t miss their payment due dates and that they pay subs on time.
By setting up reminders for upcoming bills you’re less likely to miss a payment. You’ll never wonder about future bills because you’ve already done the planning to know what’s coming.
4. Use construction billing software
The power of using construction billing software allows you to run your whole process through one platform. You can invoice the client, receive payments and track expenses all from one place. You eliminate the risk of information being lost and you bridge any gaps between your team. Communication is made much more efficient overall.
More specifically, with a billing software, you can easily tag and organize bills without sifting through papers. Everything is held electronically, which makes it easier to search through. You can create bill templates to preplan what you’ll need for each job too. That way, in the future, you can use the template, and the bills will already be created. All that’ll be needed is adjustments of finer details.
Another key benefit is subcontractor collaboration. In Buildertrend’s Sub Portal, you can let subs actively participate within the platform. They have access to see paid bills, and you can pay them through Buildertrend’s online payment features.
Monty from DMJ Restorations is also using this feature to send payments. “Our subcontractors get paid even faster than they were before,” he said.
5. Sync with accounting software
Implementing a 2-way sync between construction billing software and construction accounting software can simplify your processes even further. You can quickly enter receipts for your accounting team to review. Then they can code and send expenses directly to the accounting software. Syncing can eliminate unnecessary communication and bridge the gap between the accountant and the field crew. Stay on top of your bottom line by connecting construction software financial features to your accounting software.
Improve your billing process with Buildertrend
Your construction billing process can significantly improve by using Buildertrend’s software. The entire process takes place on the platform – from estimates to purchase orders to invoices to bills to payments. You can streamline your process and keep everything organized. With a built in construction purchase order software, all PO information can easily translate to a bill to avoid double entry. Then, the billing feature creates a quick and simple way to record all expenses and move them along to payment.
You can also improve your bill reporting process. With all data available in the software, you can sort through bills with a few simple clicks and even save the filters or reports you run often. You’ll minimize the need for paperwork altogether because everything is captured in one place.
By using construction billing software like Buildertrend, you’ll reduce late payments with access to reports on billing due dates. In addition, with the power to link your bills to the scheduling tool, you’ll always be aware of upcoming payments.
Ready to improve your billing process? Buildertrend has the tools you need to execute a strong process and keep your business running efficiently. Schedule a demo today and learn more.
Construction billing FAQs
Get answers to the most common construction billing questions.
Advanced billing: This type of billing in construction is completed before the project even starts. It’s usually in the form of a lump sum payment. With this method, there’s a lot of trust put into the parties responsible for working on the job. It can be risky because the project can run over budget. This type is ideal for parties who are familiar with each other and have a good long-standing relationship.
Arrears billing: This construction billing method is done at the end of the project. It’s also sent in a lump sum once the final product is approved. This type can be risky for the builder because they can end up paying out-of-pocket for materials and labor during the project. Arrears billing would be an ideal choice for businesses that are looking to form relationships and trust with new clients, and who also have a strong cash flow already.
Progress billing: Billing is done incrementally throughout the project when using construction progress billing. It’s more complicated than the other two types, but it can be beneficial. It allows for the builder to get paid at regular intervals which creates less out-of-pocket costs throughout. With progress billing, the contractor needs to create an agreement with the client for points of payment during the project. This is favored by clients because it incentivizes each milestone to be hit in a timely fashion.
The main difference between invoicing and billing is which party is looking at the document. An invoice is what the contractor sees and sends to the client to be paid. When the client receives the document, it would be considered a bill to them because they’re required to pay it.
Progress billing is when the payments are done at certain points throughout the project. The contractor and client will agree on certain points in the project where they will pay. So once certain milestones are hit, the client will pay what they owe at that point.
To charge for a construction project, you’ll send an invoice to the client with the amount they’re required to pay. The document can list each item or service that the client is paying for. Once they receive the invoice, they can pay the builder the owed amount.
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