Payment applications are some of the most important documents on a construction project. Without them, no one gets paid. And, if there are mistakes in one company’s application, it can delay payment to everyone on the project. Turning in accurate applications, with all of the required documentation, helps speed up payment to everyone and makes a project run smoother.
There are several payment application mistakes that can delay payment on a project. These can happen at any level, from the general contractor to a sub-subcontractor. Making sure your applications are accurate and avoiding these problems will help everyone get paid faster.
1. Not turning in a pay application, or turning it in late
If you don’t submit a pay application or invoice, you won’t get paid for your work. It’s a good idea to get in the habit of sending invoices at the same time each month, so you don’t forget. If you are a subcontractor, this should probably be around the 20th, that way the general contractor has time to include your invoice in the owner’s invoice for that month. General contractors should plan on starting their invoicing around the 25th. Be sure that the document you send is clearly marked “invoice” or “pay application,” so it isn’t confused with other documents, such as an estimate.
Almost as bad as not sending an invoice, is sending one in late. If you are a subcontractor, this could mean that you have to wait until the following month for your costs to get billed to the owner. This means it could be two months before you see payment! Make sure you meet any deadlines requested by the owner or the general contractor. If you don’t see anything written in your contract or credit agreement, ask them when their cut-off date is each month. General contractors should be submitting their invoices around the first of the month. A delay for them isn’t quite as critical unless the project owner has a strict payment schedule.
2. Using the wrong form
Using the wrong payment application form can slow down processing and delay payment. If you are asked to complete a progress billing application by the project owner or a general contractor, it is best that you do so. Some general contractors or owners won’t accept your application unless it’s a progress billing (simple invoices with just an amount due are often rejected). A progress billing form requires you to provide a breakdown of your work, how much of each task has been completed (percentage or amount), how much was previously requested, and the amount due with this application. This type of form allows GCs and owners to track the progress on the job and makes it easier for them to compare the percentage complete as per the payment application with on-site job progress.
3. Incorrect math
Providing an application form with incorrect math or wrong amounts on it can lead to having your invoice revised or rejected altogether. Verify all your amounts and add everything up a second time to be sure your math is correct. Spreadsheet formulas can automate the arithmetic, but you still need to verify that the amounts you entered are correct. Many construction management software programs have pre-programmed forms and spreadsheets to help reduce the amount of errors. These programs can automatically calculate things like retention and revised contract amounts for you, meaning that you don’t have to worry about the calculations being incorrect.
4. Not providing back-up documentation
Many projects will require that you turn in additional documents with your payment application. These may be sworn statements listing your subcontractors and suppliers, documents showing work completed or quantities, time sheets, certified payroll, or lien waivers from lower tier contractors and suppliers. Tracking these documents can be difficult and time consuming, but not turning them in will delay payment. Software can assist in tracking or creating these documents (such as construction management software, payroll reporting, and lien waiver tracking). Be sure to read your contract so you know what documents are needed ahead of time with each pay application, and be proactive in requesting them.
5. Including unapproved change orders in payment applications
In most cases, change orders need to be approved by the owner or general contractor before you can bill for them. Listing unapproved change orders on your payment application can lead to rejection of the application. Make sure that all changes are priced and turned in to the general contractor or owner as soon as practical. If there is a delay in getting approval on a change, contact the general contractor or owner to see if there is a problem. If you have repeatedly contacted them, have done the work, and can’t get a change order, then it may be best to send a separate payment application for the unapproved changes. By separating out the unapproved changes, you lower the risk that you won’t receive payment for work under contract if the application is rejected. This way, you can get payment on your contracted work, and the unapproved changes can remain in dispute. You may have to pursue a claim if the change order is not addressed promptly.
6. Billing for more work than is complete
If your cash flow is running a little low, it can be tempting to raise the amount you are billing to try to get some funds in. While you may be able to get away with a slight increase, if your billing is not reflective of the amount of work that has been completed, you run the risk of having your pay application rejected. Best practice is to bill for just the amount of work that is complete. If you are having cash flow problems, you can look into short-term loans, invoice factoring, or making payment arrangements with your vendors and creditors.
No one likes to make mistakes. Eliminating these mistakes in your payment applications will help speed up payment to everyone on the project, especially if you are the general contractor. Make sure you are billing on a regular schedule, your math and amounts are correct, you use the right form, provide the correct back-up documents, aren’t billing for unapproved change orders, and aren’t billing for more work than is complete. Software can help with many of these problems, so it is prudent to invest in some if you can. If you do these things your payment applications should fly through approval and you should be paid promptly.