Navigating Contractor Invoices: Understanding the Over and Under Billing Dynamics

Overview Contractor Invoice

Contractor invoices are essential documents that request payment and document the services provided. They include the work performed, total costs, and payment terms.

They are crucial to facilitating the transaction between two entities and contribute to the business’s reputation and professionalism. However, over and under-billing can cause significant problems for contractors and construction companies.

Time-Based Invoicing

Streamlining your time billing process and enabling clients to receive accurate invoices reduces the likelihood of payment delays caused by under- or over-billing. Understanding the dynamics of overbilling and underbilling is crucial when navigating contractor invoices, ensuring accuracy and fair practices in financial transactions within construction or service agreements.

Time billing software automates the process of recording, analyzing, and reporting billable time, saving you valuable resources that can be better spent on other tasks.

A time billing structure allows specialist workers to base their fees on the value of their expertise to the client. This is an ideal strategy for professional services industries, as a fixed project fee can result in lost profit when the nuances of a particular job require more work than expected.

Time billing tools are typically integrated with time-tracking apps to automatically log and compile trackable hours for each project. Some solutions also offer recurring invoices, ensuring month-over-month billing stays on target. They also enable you to see a complete overview of compiled, forwarded, paid, and overdue invoices in just a few clicks and automate the entire reminder process.

Subcontractor Invoicing

A professional-looking invoice is more than just a financial document for payment; it shows clients and subcontractors your appreciation for their business and helps build long-lasting, trusted relationships. A simple yet effective way to do this is by including a thank you note at the bottom of your invoices.

Subcontractor invoicing can be challenging. Invoicing for construction work often involves accurate job costing throughout a project, creating applications for payment at each stage of a payment schedule, and maintaining continual sheets to reflect labor hours and change order details. This task is difficult for independent contractors to complete manually, and a PDF-based template doesn’t solve the underlying process issues. However, home-building software can help simplify the process by connecting purchase orders and subcontractor invoices into one centralized payment cycle. This eliminates confusion and helps ensure payments are issued on time. This also reduces the risk of costly delays or collection issues resulting in a demand letter, lien letter, or even lawsuits.

Invoicing for Materials

When a project involves purchasing and storing raw materials utilized in the work completed, an invoice can be created for the materials billed to the client. This type of invoicing is commonly used on commercial projects for parts, construction components, and raw goods for manufacturing and repair work.

Using the Configuration tool, you can create Materials on customer invoices as line items in addition to standard labor and service item pricing. These items can be billed for flat rate, time, or material billing.

When creating a new Material, you can enter a description and choose an Item Type. The system can also pull in the default supplier price for the Item, which can be edited if you wish to use custom pricing for your customers. You can also specify the quantity of Materials to be invoiced for a given pay period in Column F – Material Presently Stored. This value will be recalculated each period. As the Materials are used on the project, the discount will be deducted from this amount and incorporated into Column E – Work Completed This Period.

Invoicing for Labor

Contractors need to be paid for their hard work. But they don’t get paid until their clients receive invoices that describe the job, materials, and labor costs. Keeping detailed records and sharing them without delay can help contractors monitor cash flow, stay nimble to respond to changes in the job scope, and ultimately get the jobs done within budget and on time.

Using a contract labor invoice template that is easy to fill out can save you tons of time on clerical tasks so you can spend more time with your clients. It also gives you more peace of mind that your client will process the invoice and pay on time.

If you don’t hear back from a client by the invoice due date, follow up with them as soon as possible. Start with a first nudge note that is polite but firm about the amount they still owe. Then, continue with regular, respectful follow-ups until you receive payment.