The construction business is known for its slow payment procedures and relying on credit cards to keep the project running. General contractors often have to resort to traditional and outdated invoicing methods, which leads to a slow payment procedure and a hefty rise in credits. Ultimately, invoice management becomes integral in such cases.
But in order to move forward, the general contractors have to handle invoice management and ensure the processes such as payrolls are in order. Therefore, every general contractor should look forward to implementing steps to improve invoice management in construction.
What is Invoice Management in Construction Business?
In simple words, an invoice is a document used by general contractors and suppliers to request payment for their work. It creates an official agreement of the purchase. Typically, an invoice includes:
· The creation date of the invoice
· Details such as Names and addresses of both parties
· A detailed description of the goods and services offered
· Price and terms of payment
Some of the invoices may include more information and details, depending on the type of work.
Best Invoice Practices for General Contractors
Every construction business has different invoicing methods. These businesses often stick to one particular method, but there is always room for improvement. Below, we have identified a few ways general contractors can improve their invoicing:
· Make sure to send timely invoices
· Send clear and concise invoices
· Leverage technology
· Make short payment milestones
· Early pay discounts
· Follow up invoices
1. Make Sure to Send Timely Invoices
During the last year, numerous construction firms faced difficulties in getting paid on time. A large proportion of them faced problems such as late payments, which hindered their overall progress. It is important to realise that the more these firms wait, the more complicated the problems get.
Therefore, it is important for general contractors to send invoices on time and ensure that they get paid on time. The quicker you send them, the swifter the payments will be. Late invoices may result in more drawbacks, such as client confusion. Make sure to send them when the work is still fresh in their minds.
2. Send Clear and Concise Invoices
Apart from timely invoices, you need to also make sure that they are accurate and to the point, so the customers can exactly know what they are paying for. The accurate and clear invoices will help in avoiding any confusion and eliminate any risk of disputes.
If you send unclear invoices, they might be incomprehensible or vague because they have few details. Moreover, things can also become more complicated when manual tracking sheets are misplaced, resulting in error-prone invoices.
Paper and pen are never recommended for invoicing since they increase the chances of errors and disputes among vendors as well. Although it is a good idea to provide a detailed description of the services you offer, make sure not to go overboard with the details. You can also implement standardisation in practice to help you establish a format you can use for every invoice.
Having a basic labelling process will make it easier for everyone since it keeps the business organised and compact. Moreover, it also provides a professional touch.
3. Leverage Technology
Another way you can send accurate invoices is with the help of technology. Using technology tracking, general contractors can make sure that each invoice is accurate and has everything the client needs to know. Online technology offers great insights into the invoices and enables the contractors to share them with stakeholders in a matter of seconds.
This helps in moving all the projects together and prevents any inconvenience in terms of payment. Apart from that, the data shows updates automatically in real-time, which helps in sharing reports and making accurate decisions.
4. Make Short Payment Milestones
One of the most effective ways to improve invoice structure is with the help of short payment terms. Whenever a general manager goes for longer pay milestones, it results in higher debt ratios that hinder the company’s finances in general. Many construction businesses nowadays use a 7-day policy, which keeps cash running through the business.
It is evident that it is not yet an industry norm but make sure to try your best to include shorter terms when invoicing to a client. Negotiate better payment term conditions and don’t agree to longer payment terms. Since many construction businesses charge for the project, it hinders their cash flow immensely.
5. Offer Early Pay Discounts
The construction business can offer some discounts if the payments are being paid early. Doing so will help construction businesses bring cash into the business early on. For example, they can offer 10% off on the entire project on advance payments.
On the other hand, construction firms can also start penalising the late payments to make up for the loss incurred due to late payments. If any client fails to pay within the deadline, they can charge them extra as a late payment penalty.
It is reported that over 43% of companies adopt this practice in construction projects. Stats and studies also show that these tactics can be effective in battling late payment problems and maintaining cash flow. This tweak in payments can help general contractors to drive in more money in advance.
6. Follow-up Invoices
Some general contractors don’t follow up on payments, which often results in late payments. Therefore, it is always a good idea to catch up on payments, especially when they are nearing a deadline. You can either send them an email or a text message to give them a gentle reminder about the payment status. And if that doesn’t help, you can follow up with the help of a phone call.
As a general contractor, you don’t have to wait till the deadline passes to reach out to a client. Getting the payment within the deadline will be helpful for the firm and would ultimately improve cash flow.
Improve Invoice Management with VERGO
Many businesses are switching to digital tools and solutions. Vergo is a virtual debit card to help make invoicing easier and seamless for general contractors. Make sure to check it out and enjoy its amazing features.Ultimately, invoice management is necessary to get fruitful results.
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