Creating Invoices for a Construction Business
What Is A Construction Invoice?
Construction invoices serve the same general purpose as other invoices: formal payment requests from customers for a specific amount for a specific job. However, construction invoicing can be trickier and best practices differ from many other industries for a variety of reasons, including multiple projects, a more significant tie between supply costs and payment terms and seasonal gaps.
How To Create A Construction Invoice
When creating a construction invoice, keep these key factors in mind:
- Know what to include.
There are also invoicing best practices that every business should follow when creating an invoice. However, creating a construction invoice differs from other business invoicing because you need to record third-party costs, log the hours you’ve worked and match the estimate you gave your customer.
Invoicing as soon as possible, or even multiple times during a project, can be difficult to keep up with, especially after a long day of work. Fortunately, there are tools that do most of the work for you, and products like Kabbage Payments help you create and manage all of your invoices in one place. Kabbage Payments also allows you to send customizable professional invoices to your customers through email or a custom pay link through email, web, or text. Simple, fast and effective!
- Know construction payment terms.
Payment terms specify how long customers have to pay their bills. However, there are some shorthand terms construction business use more often than other businesses for invoicing.
The most common payment terms for construction billing is in a Net D format. Simply put, this lays out the number of days a customer has until a payment is due. For example, Net 60 means a customer has 60 full days from the invoice date to pay. To show any discounts, you can add them before. Let’s say you’re offering a 5% discount on payments made within 30 days. Your invoice would say, “5.0/30 Net 60”.
- Invoice quickly.
Create and send your invoices as soon as a job is completed or products are delivered. Keep your business at the top of your customers’ minds by billing them as soon as possible. Make sure your customers know the exact payment dates and what late fees they’ll incur if they miss it.
Sending your construction invoices immediately also maintains your cash flow at a steadier rate. This means you can take on additional projects without worrying about how to pay for supplies, workers and whatever else you need to get the job done. Thankfully with products like Kabbage Payments, it’s easier than ever to quickly send an invoice to your customers as soon as you’ve finished a project.
- Consider using retention or issuing partial payments.
Retention is the amount of money you withhold from each payment invoice — usually between 5% and 10%. It’s a good sign of faith because it tells your customers that you won’t just take their payment and do lackluster work or not finish a project. After a job or service is completed to satisfaction, send your retention invoice along with the overall project invoice so your customer sees (and understands) how much left they need to pay.
You can also try issuing partial invoices over time. Let’s say you’re working on a project that lasts eight weeks. You can issue a partial invoice every two weeks. This protects you because if they refuse to pay, you can stop working on a project and won’t waste more resources without getting paid. You also won’t have to worry about waiting for a payment well after the project is over. The smaller incremental amounts might also make payment easier for your customer. However, make sure the customer understands they must pay the increments on time to keep the project going.
- Know what to do when an invoice goes unpaid.
One of the most frustrating aspects of contract work is not being paid. You’ve completed the project per the contract, but your customer takes a long time or even avoids paying. So, how do you deal with unpaid invoices and get your clients to pay faster?
First, you can potentially avoid late payments or unpaid invoices by incentivizing early payments. For example, if a payment is due in 30 days, offer a 5% discount for paying within seven days. However, if this still doesn’t work, send friendly reminders as the payment due date is coming up and after it passes. While it can be challenging to stay professional and positive as more time passes, you never want to act unprofessional toward your customer. If worse comes to worse and it’s looking like your customer refuses to pay, let them know you are looking into legal action (and do so). After all, you did the work, so you deserve to get paid. Using proper invoicing practices ensures you will have the paper trail if it’s ever needed legally.
- Get a full view of your finances.
Of course, having a complete picture of your finances helps with cash flow gaps overall. While it’s important to stay on top of your invoices, it’s equally important to be aware of your cash flow ups and downs, so you can better prepare for potential late invoice payments or even gaps in work.
Tools like Kabbage Insights can help you make smarter business decisions because it combines and analyzes all of your connected financial accounts in one, easy-to-read place. You’ll always have an analysis of your financial data, so you can see how your business is performing, forecast future weeks, prepare for potential opportunities and avoid missteps.
Construction is an expensive business to run, so it’s vital to stay on top of your invoicing and cash flow to ensure you don’t run out of funds. Invoicing is a critical key to a healthy cash flow, so make sure you follow these construction invoicing best practices to help your construction business grow.