Explore Key Construction Billing Methods & Best Practices

By using a contingency fund, the contractor can cover the costs of some changes to the original scope of work. Estimate, invoice, collect payments, andmanage projects from anywhere, at anytime. FreshBooks contractor accounting software programs strike the ideal balance between ease of use and functionality.

Time and Materials (T&M) Contract:

Cost-plus billing reimburses contractors for actual project costs plus a pre-agreed percentage for profit. Excavation fixed assets and earthwork professionals can use this template to accurately bill for labor, materials, and equipment costs. It features a clear, structured format to ensure detailed cost breakdowns and transparent client invoicing. Designed for digital workflows, it streamlines billing, improves efficiency, and helps keep overall project finances organized. This template is designed for electricians who bill for labor and materials separately, rather than at a fixed project rate. The template ensures precise documentation of work performed and parts used, with a clear, organized format to itemize billing and cost tracking.

What Is Job Costing?

This can back a contractor into a corner in a way that a fixed-price contract would not. Any changes in labor hours or materials costs will not affect the client but will instead impact you as the contractor. Since you’ll agree on a price ahead of time, any unforeseen changes or complications can drastically cut into profits, resulting in cost overruns. Invoicing construction projects requires a lot of planning, detail, and communication from all parties. Mismanaging invoices can be detrimental to contractor’s financial position — and the overall success of a project.

• However, with T&M billing comes important considerations for contractors and clients.
• Whether invoicing for milestone payments, final project completion or progress-based billing, a template ensures that all details are properly documented and professionally presented.
• Construction billing refers to the methods and practices used to invoice clients for work on a construction project.
• It also promotes a steady cash flow stream, as you don’t need to wait until the end of the project to receive payments.
• And since we’ve so neatly landed on the topic, what better time to dig into some of those invoicing methods?
• Roofing contractors who invoice in stages can use this template to document work completed, outstanding payments, remaining project costs, and payment terms and instructions.
• If the contractor will be giving the client a certain number of days to pay, list this in the “payment is due within __ days” field.

Beginners Guide to Construction Invoices

Construction firms who work on public projects commonly have to navigate prevailing wage payroll, often called “Davis-Bacon payroll” after the landmark Davis-Bacon Act. If there are any overruns because of changed site conditions or input costs, it falls on the contractor. Once a contractor does have a right to it, after satisfactory contract completion, the contractor issues an invoice for it and moves it from the asset account to the A/R account for collection. According to revenue standards, the contractor doesn’t have a current, unconditional right to the retainage portion of an invoice.

• So, a single employee might have multiple prevailing wage rates and fringe requirements on a single job, depending on what they’re doing each hour.
• Unlike other industries where companies get to determine how and when they charge for services, subcontractors often have little control over this.
• We explore these methods below, helping you choose the most effective billing strategy for your construction projects.
• Describe the late payment charges according to your company’s policy and what are the accepted payment methods.
• As a result, you might fall short of achieving the desired profit in the construction project.
• In this blog, we’ll dive into what makes construction accounting unique and the information contractors need to track to attain long-term success.

This template is perfect for contractors who charge a fixed price for an entire project rather than billing hourly or by materials used. It offers a clear, easy-to-navigate layout for documenting key project details, payment terms, and total costs. It’s available in digital and printable formats, making it versatile and convenient for any work environment. This template is ideal for contractors who bill based on labor hours and Financial Forecasting For Startups material costs. This template features a straightforward format to track all project-related expenses and ensure accuracy and professionalism in client billing.

• Nobody wants to spend hours digging through job orders and purchase reports, but an effective construction invoice is the key to keeping your construction business profitable.
• This post covers the certified payroll requirements for contractors working on federal construction projects.
• Understanding these methods and choosing the right one for your project is essential for maintaining smooth financial operations.
• Retainage (or retention) is a percentage of your payment that the GC or owner will hold until the project or job is complete.
• Sum both the subtotal and the tax amount and put the resulting value into the “Total” field.
• Keeping organized records of your costs will save time on a project in more ways than one.

This method of accounting tracks income and expenses along with the job they relate to. Job costing is most effective when conducted by your construction accounting software. After the project is completed, construction companies perform a post-job review to analyze and assess the job’s overall profitability. Not all standard accounting software has the features you need for the construction industry. For example, suppose your company uses progress billing on large jobs (where each invoice is charged against the total cost of the job over time until the balance is paid). In that case, your construction accounting software needs to be able to produce a schedule of values to help you track the running total.

So, Which Construction Billing Method Should You Choose?

With a total development project, transfer of control might not be until the contractor hands over the keys. But because it’s part of a contract obligation, the parties must settle ahead of time when control is transferred — at a point in time or over time — to account for income appropriately. To be eligible, contractors can’t exceed a certain average annual revenue, and their contracts must be able to be completed within a set construction invoice timeframe.