The Dotted Line: 7 Invoice Mistakes That Waste Time, Money

By on August 6, 2019

From ConstructionDive:  This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.

Submitting an invoice for completed work and then getting paid is about as straightforward as the construction business gets. Or at least it should be. Getting paid on time is the lifeblood for contractors, but many consistently make the same mistakes over and over when handling this vital process.

Here are the biggest mistakes many contractors make when it comes to invoice management.

Not knowing what’s in the contract

Reading a contract and knowing its terms are the first steps to getting invoices right. The contract contains information on which forms to use, billing and payment timelines and what information must accompany each payment request — this is important to know if you want to be able to pay bills and make payroll.

“As basic as it sounds,” said Carl Oliveri, partner and construction practice leader at New York City accounting and consulting firm Grassi & Co, “that’s where it all starts and stops. If you’re not billing within the terms of the contract, you’re not going to get paid.”

Mostly, the confusion arises in the relationship between subcontractor and general contractor, but GCs need to be aware of the requirements attached to their invoicing procedures with the owner.

When a project uses construction loans, for instance, there could be specific requirements that flow down from loan terms into the general contract, said attorney Timothy DeHaut, co-chair of the construction law practice at Giordano Halleran & Ciesla in the New York City area. For instance, prior to payment, the GC could be asked to sign away the right to any claims against the project through the date of payment so as to minimize the owner’s and lender’s exposure to change orders or unexpected costs.

This can happen to subcontractors as well, he said, and recommends that all contractors try to negotiate terms of lien waivers or other documents that could cut into their rights to bill for extra work.

General contractors and subs “don’t review [the requirements] prior to the contract formation,” DeHaut said, “and then are shocked as to what is in there.”

Not paying attention to clients’ billing processes

Some of the problems that subcontractors, particularly smaller ones, have with compliance to the terms of a contract are sometimes due to their limited experience with a wide variety of clients. These companies have spent years doing business with just a few general contractors and just assume other general contractors conduct business the same way.

Oliveri said subs should try to make a concerted effort to get to know the billing process and schedule of each client. There might even be a contract clause that allows billing twice a month instead of just once, which is most common in subcontracts. For cash flow, that could be a game changer.

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