Construction Invoices: All You Need to Know

Construction Invoices: All You Need to Know

One of the most important things that you must learn when running a construction business is how to prepare and serve your invoices properly. Invoices are a key part of the construction sector – they get construction parties paid but they can also be the root of payment disputes and delays.

This guide will explain everything you need to know about invoices: what they are, what you must consider when sending them, and what best practices can help you in getting your invoices paid.

What are construction invoices?

Construction invoices are documents that a construction vendor issues to a client who purchases the vendor’s services and products. Construction vendors include general contractors, subcontractors, and material suppliers and they send invoices to their clients, typically property owners, or to any party who hired them to provide construction services and products.

A construction invoice may be sent before or after construction services have been rendered on a construction project. It is often documented proof or verification of an initial agreement with a client regarding the prices of the materials and services and how they must be paid.

What makes a construction invoice? What information can you find in one?

You will find the following information in a typical construction invoice:

  •     Date that the invoice was created

This date is very important because it also implies the deadline by which the invoice must be settled. Construction invoices are expected to be paid after a certain number of days or months, depending on the payment terms, and the date noted in the invoice marks the reference date for the payment deadline.

  •     Your name and address

This is your own information. If you are building your own invoice template, make sure to include your full business name, physical address, as well as contact information. Also, ensure that there are no spelling or typographical errors.

  •     Name and address of your client

This is the name and address of the client who hired you to provide construction services or materials to their project.  As with all names and addresses in a formal document, make sure that there are no spelling and typographical errors.

  •     A description of the items or services rendered on a project

This describes the products or services that you provided to a project. It is best practice to make it as detailed as possible and to make sure that the description is sufficient to be easily understandable. Payment disputes may arise if you or the clients get confused as to what items are being described in the invoice.

  •     Prices (including taxes)

These are the prices and applicable taxes related to the services that you provided. It is good practice to be detailed in listing the prices in an invoice. Include unit prices and quantities before providing a total.

  •     Terms of payment

This describes how much time your client has before they have to pay and settle the invoice. A construction invoice typically has payment terms stated as “net 30 days” or “net 60 days,” implying that such an invoice must be paid within 30 or 60 days.

Construction Invoices vs. Other documents

Some of the information mentioned above may also be found in other construction documents. However, a construction invoice is not the same as other forms that you will also often encounter in running a construction business.

Construction Invoices vs. Purchase Orders

A purchase order is simply a record that a client has ordered parts, materials, or services from a construction party. It tracks information such as what services have been ordered, but it does not say anything about payment terms.

A purchase order is issued before a transaction occurs, while an invoice implies that a transaction has already occurred and the prices and payment terms have been agreed upon.

Construction Invoices vs. Bills

A bill is a request for immediate payment and it is typically issued in other commercial transactions such as in restaurants, car dealerships, etc. Typically a seller or provider of services will hand a client a bill and the client is expected to shell out money or a payment plan in exchange.

A construction invoice is similar – it does have prices and contains the payment terms – but the payment request is not immediate. An invoice may even be sent before a service is received by the client. Material suppliers also often send an invoice as the materials are being delivered, and the client receiving the invoice does not have to hand a paycheck right away.

Construction Invoices vs. Payment Applications

A payment application is another payment document, although the payment that will be received from this request will be applied to an account balance. A payment application may include invoices from multiple transactions, but an invoice alone does not have to be a payment application.

What to consider before sending a construction invoice

  1.     Availability of a client-standard invoice form

Before you go to all the trouble of preparing your invoice, you must first verify with your client if they have a standard invoice form that they want you to use. While most clients would not mind if you stick with your own invoice template, some clients require invoices to be in a certain format.

  1.     Frequency of sending an invoice

You must also consider how often you should send a construction invoice to your client. The ideal frequency of sending an invoice will depend on how long the project is.

If the project will last for less than a month, you can serve an invoice only once after all your work has been completed. Because the duration of the project is not as long, one detailed invoice should be enough to list all the services or materials that you have furnished in the given period.

If the project will last for longer than a month, you can serve an invoice every month. It is typical for construction parties to serve an invoice on a monthly basis, and it is recommended that you serve your monthly invoice at the beginning of each month. An invoice for the month of January, for example, must be sent in the first week of February, and so on.

Invoice frequency

  1.     Exclusion of retention amount

Retention is another important aspect that you must consider when preparing your invoices. Retention is the amount of money that is withheld by a property owner or a higher-tier party to ensure that the people they hire complete the job according to the agreed-upon terms.

If, for example, you work on a project and you fail to finish it, the retention that the property owner kept will be used towards hiring another party to finish your work. Retention, therefore, incentivizes construction parties to complete their jobs and to do them properly.


So, how does retention affect your invoices?

If you are working on a project and a retention amount is being withheld, you must deduct this amount from your invoice. Retention is typically 10% of the total contract amount, but you must verify how much is being withheld by the owner to make sure.

So, if your total invoice amount for March, for example, is $10,000, then you must include an item in your invoice for -$1,000 corresponding to the 10% retention. The very last invoice that you will serve will typically be for that remaining 10%.

Keep in mind that if no retention applies to your project (i.e. the property owner or the party who hired you is not retaining a portion of your payment) then you do not have to deduct retention on your invoice.

  1.     Service of lien waivers

It is common for construction parties to serve lien waivers together with their invoices. Lien waivers are documents that waive one’s lien rights. When a waiver is served, the party who signed the waiver is effectively relinquishing their right to recover payment via a mechanics lien.

Nobody likes dealing with a mechanics lien, so serving a lien waiver incentivizes property owners to pay the invoices right away. By paying the invoices, they get peace of mind that they will not be dealing with a mechanics lien recorded against their property anytime soon.

A conditional lien waiver is a specific type of lien waiver that is commonly sent with construction invoices. A conditional lien waiver does not take effect until payment from the client has been received, so it does not cause you to lose your lien rights until you get paid.

You are, therefore, encouraged to serve only a conditional lien waiver form. Serving an unconditional waiver is risky – you may end up waiving your lien rights and not getting paid.

Note that if retention applies to your project, you must not include the retained amount in your lien waiver. Waive only your lien rights for the items listed in your invoice, minus the retention.

Conditional lien waiver

  1.     Additional documentary requirements

Some construction contracts will require you to send additional forms together with your invoices. These forms may include a labor release form and your supplier’s invoices.

A labor release form ensures that the parties working for you are getting paid. Some property owners will require this to ensure that you are correctly disbursing the payment and they will not be surprised with a mechanics lien recorded on their property.

A supplier’s invoice is the invoice that you received from your supplier if you are a general contractor or a subcontractor. The supplier’s invoice may be required by a property owner to ensure that you are itemizing your invoice correctly and that you are duly paying for those materials.

What happens if you make a mistake in your invoice?

If you serve an invoice with a lien waiver, the items in your invoice are considered final and may not be changed. This means that if you have conditionally or unconditionally waived your lien rights for a certain amount, you will lose your right to file a mechanics lien for this specific amount, whether it is accurate or not.

If the amount that you included is less than what you should have been paid, then you can consider charging the difference in your next invoice. This process may not be easy as it can cause discord between you and your client.

The same conflict may arise if your invoice amount ends up getting higher than what it should be. You must try your best to avoid making calculation and itemizing errors at all costs because making small mistakes gives you little wiggle room to correct them.

What to do after an invoice has been paid

As with any payment in construction, make sure that the payment is actually cleared before you make any further decisions. Wait a few days to confirm that a cheque has not bounced or a credit card transaction has been approved.

Clients may require you to surrender an unconditional lien waiver after paying an invoice. If this happens, always verify first that you have the payment on hand before you sign the unconditional waiver.

Best courses of action when invoices are not paid in a timely manner

  1.     Be persistent with your client

Payment disputes and delays happen so frequently in the construction business so you must be persistent when demanding payment. Do not hesitate to call your clients and follow up to know what’s causing the payment delay. You may also send payment demand letters and put your demand in writing.

  1.     Be ready to send an updated invoice

Some clients will say that they have lost your invoice which is why they have not released the payment yet. If this happens, make sure that your books are organized so you can easily serve your client an updated copy of the invoice.

  1.     Consider getting help from an external party

You may also get help from external parties if these payment delays become too much of a burden for your company. Collection agencies can help you settle payment, and so can factoring companies.

An invoice factoring company is a good option to ensure that the payment delays do not clog your cash flow, and factoring companies can also handle the payment collection for you.

  1.     File a mechanics lien

The construction industry allows its construction parties to file a mechanics lien as a way to recover payment from delinquent clients. A mechanics lien is a legal claim that is very powerful in forcing property owners to settle outstanding debts. If your invoices do not get paid, filing a mechanics lien may be your best option to get your money.

Best practices in construction invoicing

  1.     Be clear and detailed

Your invoice must be clear with its item descriptions and it must also be detailed enough so everyone understands which items are which. Payment disputes can come up because the parties do not agree on the items in an invoice. These disputes may be avoided if you take some time to prepare a thorough invoice.

  1.     Serve an invoice at the beginning of each month

If your project will go on for over a month, serving a monthly invoice at regular intervals is a good business practice. Your clients will expect an invoice at the beginning of each month and you may also expect payment in a consistent time period.

  1.     Ensure the accuracy of the information in your invoice

You cannot afford to include the wrong prices in your invoices, so take some time to double- and triple-check your items. Clients may question your invoice if you charge too much and it may taint your business relationships.

If you serve a lien waiver together with your invoice, the lien waiver is also final and the amount may not be modified. Making mistakes in an invoice can also cause issues with your lien rights, so try your best to be as diligent as possible.

  1.     Keep your paperwork organized

Some clients will require you to serve additional paperwork such as the invoices of the parties working under you – it is, therefore, best practice that you have all your documents organized. Clients may also ask for a second copy of your invoices. Having the ability to update your invoices and make copies right away reduces potential for further delays.

Check invoice accuracy

  1.     Maintain open communication with your clients

Being persistent with your clients will be easier if you communicate with them regularly. If you are in contact with them throughout the project, calling them to ask about payment and other concerns should go a little smoother. Most clients are willing to explain and negotiate, so maintaining that open communication line with them is considered good business practice.

 Further reading

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