No. 5: Score Big With Better Billing

Editor’s Note: This is the fifth article in the series, “Software Feature Line-Up,” by Mike Ode. Each article focuses on must-have accounting software features. To read the previous article, click here. To read the next article, click here.

In order to compete and win, players must first understand the rules of the game. And the first rule of construction is: Cash is king.

So how do successful contractors maintain the necessary inflow of cash?   After selecting the billing method best suited for their jobs (e.g., AIA, percent complete, time and material or unit price), they bill and collect according to their contracts, they bill promptly and they never forget about such items as change orders and retention.  Equally important, successful contractors rely on construction-specific accounting software to automate the entire process.

Industry-Specific Billing Methods Call for Flexible Solutions

In construction, customer billings come in many types and sizes-from the small, quick-hit service invoice to the detailed unit price bill and everything in between.  Heavy highway contractors who perform work for state departments of transportation generally require unit price billing.  Many contractors prefer time and material billing. Some contractors simply use lump sum billing.  However, AIA and percent complete invoices are the most commonly used in the industry. These progress billings allow contractors to bill as the job progresses.

The problem with progress billing, from a contractor’s perspective, is the amount of time it can take to accurately calculate billings based on percent complete (sometimes by individual line items) or quantity/units completed, and then keep track of what has been billed/received to date. Add to that the hassle of manually entering this billing data line-by-line, and it’s no wonder that late and erroneous billings are a common complaint among contractors nationwide.

Small business accounting systems (including contractor versions) are not designed-nor are they flexible enough-to handle construction-specific receivable issues. Contractors who use these systems often have to rely on spreadsheets or add-on software to calculate prior and current completed work, retainage and so on.  And of course, the only way contractors can track these billings is to pull previous invoices, add them together, subtract receivable income and hope that their math is correct.

Likewise, standard accounting systems are unable to handle other construction-specific billing methods.  Without the ability to define and calculate markups and/or billing rates based on job, customer or cost code, contractors who use time and material billing must also resort to spreadsheets and applications outside their accounting program for tracking and billing their jobs.  And for contractors who use detailed unit price billing formats, generic programs are not capable of tracking and billing for quantities completed by line items.

Construction Business Owner, June 2009