How to Use Each Construction Billing Report

Construction billing reports hold valuable insights into your cash flow and monitoring cash flow is how you guarantee a timely payment. Recently, slow payments have become a common pain point in the construction industry.

According to Levelset, 95% of construction companies note that they experience stress over slow payments. However, many do not take significant action to remedy payment problems.

The solution to slow payments is to effectively implement construction billing reports into your operations. By understanding how to interpret and use the data provided by your reports effectively, you can:

• Identify potential delays
• Strengthen communication with clients
• Get paid faster

Ultimately, these reports help contractors more effectively manage their cash flow and forecast progress and productivity to maximize profitability.

Key Takeaways for Contractors:

• The best type of billing option for a construction project depends on the specific project details and the level of certainty in the project scope.
• The most common construction billing methods are Fixed Price Billing, Time & Material Billing, Cost-Plus Billing, Unit Price Billing and AIA Progress Billing. Each requires reports that vary in detail and format.
• Construction billing reports ensure accurate documentation and progress tracking which contribute to securing timely payments for contractors.
• Construction billing reports can be a powerful tool that helps remedy payment problems by strengthening negotiations, identifying billing issues, improving communication and supporting timely invoices and payments.
• Construction accounting software can automatically generate construction billing reports, allowing contractors to make faster, more informed decisions when compared to manual methods like traditional spreadsheets.

Let’s delve into the power of construction billing reports and how the right tools can unlock their potential to streamline your billing process and expedite payments.

What Are the Most Popular Construction Project Billing Methods?

We’ll start with an overview of the various construction billing methods.

Fixed Price Billing

Also known as Lump Sum Billing, this method is where the contractor and client agree on a total project cost upfront. The construction business is then responsible for completing the project within that budget.

This benefits the contractor by offering a potentially higher profit margin by completing the project under budget and streamlining the bidding process.

However, this method requires accurate project estimates as the only way to avoid financial losses. This means that any changes to the project scope through change orders will typically result in adjustments to the final cost.

Time and Material (T&M)

The client is billed for the labor hours worked on the project and all the materials used, plus a markup for the contractor’s profit. This allows contractors to avoid the risk of underestimating project costs upfront for easier invoicing.

However, this method requires accurate time tracking by the contractor.

Cost-Plus Billing

This method allows the contractor to get reimbursed for all project expenses such as:

• Materials,
• Labor
• Equipment
• Subcontractors fees
• A predetermined percentage fee for their profit

This allows the contractor a reduced risk for cost overruns, more clear details about the costs of materials and increased flexibility for project changes.

Unit Price Billing

With this method, the project is broken down into measurable units and the client pays a pre-determined price per unit that includes labor, materials and profit for the contractor.

This gives contractors the flexibility to adjust for project scope changes, which is good for material-dependent projects. However, this requires meticulous record-keeping to track completed units, and contractors need to factor in all costs and profit margin when setting the price per unit.

AIA Progress Billing

The American Institute of Architects (AIA) billing method requires the contractor to receive payments throughout the project based on project milestones or percentage of completion rather than waiting for one lump sum at the end.

This method guarantees a steady cash flow throughout the project, which by proxy means better financial management, but requires well-defined milestones.

The best type of billing option for a construction project depends on the specific project details and the level of certainty in the project scope. With each of these billing methods comes required reports that vary in detail and format based on the chosen method.

These reports ensure proper documentation and progress tracking, which contribute to securing timely payments for contractors.

How are Reports Used for Each Construction Billing Method?

By knowing the specific reporting information required for each billing method, you can ensure the reports are accurate and reflect the project’s true cost.

This clarity can help strengthen the contractor’s position when sending out invoices to prevent late payments.

Fixed-Price Reports

Fixed price reports are not as common since the total cost is already established.

However, when they are used, they typically focus on:

• Change Orders: Any changes to the project scope that occur after the initial agreement are documented through change orders.
  • The report would detail the specific changes requested by the client, the impact on the project and the resulting cost adjustment to the overall project price.
• Cost Variances: While not always included, some might show variances between estimated and actual costs for specific project components providing insight into project efficiency.
• Focus on Completion: Reports are used upon project completion to demonstrate successful delivery within the agreed-upon budget serving as a record for both parties.

With fixed-price billing reports, it’s important to remember that accurate cost estimates are crucial for success.

The reports also may not be as detailed since the focus is on adhering to the pre-agreed price, not tracking ongoing costs.

Time & Material Reports

Time and Material (T&M) billing reports are essential documents for construction projects that use this billing method.

T&M reports track actual labor hours and materials used throughout the project and typically include:

• Project Details: Identifies the project name, client information and any other contract details relevant to T&M billing like agreed-upon hourly labor rates and material markup percentages.
• Labor Costs: This details the total labor hours worked on the project during the billing period broken down by role or specific project tasks. The report will also show the corresponding cost based on the pre-agreed hourly rates.
• Material Costs: This section will detail all materials used during the billing period. It should include:

• • A clear description of each material
  • The quantity of each material used
  • The unit cost of each material
  • The total cost of each material

• Markup: The contractor’s pre-agreed markup profit percentage is applied to the total labor and material costs.
• Total Project Cost: Calculates the total project cost for the billing period by summing the construction labor costs, material costs and markup.

In addition to these details, some T&M billing reports may also include:

1. Year-to-Date (YTD) Totals: This provides a cumulative view of labor, material and total project costs for the entire year so far.
2. Project Progress: A brief description of the work completed during the billing period to see how the budget is being used.
3. Change Orders: If any changes to the project scope occur, the change orders’ impact on labor or material needs are included.

T&M billing reports also ensure the contractor is billing for the exact amount of labor and materials used, reducing possible discrepancies. By tracking costs throughout the project, contractors can use these reports to request timely payments based on work completed.

Additionally, T&M reports can reveal areas where labor or material usage might be exceeding expectations, allowing for adjustments and improved project management.

Cost-Plus Reports

Cost-plus billing reports are key documents that typically include:

• Project Details: Identifies the project name, client information and the contract details relevant to cost-plus billing.
• Expense Breakdown: This is the core section and details all project expenses incurred during the billing period categorized to include:
  • Total Labor Costs: Total labor costs for workers on the project, potentially broken down by role.
  • Material Costs: A detailed list of all materials used, including descriptions, quantities, unit costs and total costs for each material.
  • Equipment Costs: Any costs associated with renting or using equipment for the project.
  • Subcontractor Costs: Total cost of any subcontractor work performed during the billing period.
  • Other Direct Costs: Any additional project-related expenses.
• Total Project Costs: Calculates the total project cost for the billing period by summing up all the listed expenses.
• Contractor Fee: Includes the contractor’s fee calculated by applying the pre-agreed markup percentage to the total project cost.

In addition, some cost-plus billing reports may also include:

1. Year-to-Date (YTD) Totals: This provides a cumulative view of all project expenses and the contractor’s fee for the entire year.
2. Project Progress: A brief description of the work completed during the billing period, which can be helpful for the client to understand how their budget is being used.
3. Variance Analysis: This section might compare actual project costs to budgeted costs for specific expense categories to identify where spending might be exceeding expectations.
4. Guaranteed Maximum Price (GMP) Status: If the contract includes a GMP clause, the report might show the remaining budget available and any potential for cost overruns.

These reports offer detailed breakdowns of all project expenses for visibility into how project funds are being used. This ensures the contractor is reimbursed for all legitimate project expenses.

Cost-plus reports can also reveal areas where expenses might be exceeding expectations, allowing for adjustments and improved cost control.

Unit Price

Unit price billing reports will summarize costs and progress in construction projects and typically include:

• Project Breakdown: Outlines how the project has been broken down into measurable units, like:
  • Square footage of flooring installed
  • Number of windows replaced
  • Cubic yards of concrete poured
  • Linear feet of piping installed
• Unit Prices: This shows the pre-determined price per unit for each type of work. This price should factor in labor, materials, equipment and the contractor’s profit margin.
• Completed Units: The number of units completed during the billing period is crucial for calculating the total amount earned by the contractor.
• Cost Summary: The total cost incurred for each type of work based on the completed units and their corresponding unit prices for comparison between planned costs and actual costs.
• Percentage Complete: A calculation of the overall project completion percentage based on the units.

These reports provide a clear picture of how much each phase of the project costs and how much progress has been made. This allows for timely adjustments to the schedule or budget if needed.

These in-depth records of completed units and corresponding costs can also be used to justify progress payments to improve project cash flow.

AIA Progress

AIA progress billing reports serve a crucial role in ensuring clear communication, accurate billing and timely payments between contractors and clients and typically include:

• Contract Summary: A reminder of the total project cost established in the contract.
• Retainage: If applicable, a percentage of the payment held by the client until project completion.
• Previous Billings: A summary of all payments made to the contractor to date.
• Current Billing: A detailed breakdown of the work completed during the current billing period and its corresponding cost, including:
  • Description of work completed
  • Labor hours used
  • Material costs incurred
  • Equipment usage details
• Supporting Documentation: Any relevant documents like change orders, material receipts or labor time sheets to support the billing claims.

The AIA progress format ensures clarity and consistency in billing communication, which can help minimize errors. This allows both contractors and clients to have clear visibility into project costs and progress through detailed breakdowns in the reports.

AIA progress billing forms are designed for ease of use, simplifying the billing process for contractors. AIA reports can help contractors receive timely progress payments by clearly documenting completed work, improving cash flow.

How Can Construction Billing Reports Remedy Payment Problems for Contractors?

Construction billing reports can be a powerful tool to help remedy payment problems for contractors as using billing reports can:

• Strengthen Negotiations: Construction billing reports provide clear, documented evidence of costs incurred throughout the entire project. This data strengthens the contractor’s position when negotiating with clients or resolving disputes about payment amounts.
• Identify Billing Issues: Detailed reports can help contractors identify potential billing errors early on so they can address discrepancies with the client before they snowball into larger problems.
• Improve Communication: Sharing construction billing reports with clients fosters transparency and clarifies project costs, which can help prevent misunderstandings and payment delays.
• Support Timely Invoices: Construction accounting software often automates invoice generation based on pre-set payment schedules and project data. This ensures contractors submit invoices promptly, keeping them on track for receiving payments according to the agreed-upon terms.

However, it’s important to remember that construction billing reports are just one piece of the puzzle. For them to be effective, contractors need to ensure:

1. They are consistently and accurately recording all project costs.
2. Choose the correct billing method for the project to explain cost data and address the questions or concerns of the client.
3. Clearly define contracts outlining payment terms and dispute resolution procedures.

This will help maintain open communication with the client, keep payments timely and ultimately lead to better financial health.

How Does Construction Accounting Software Simplify Construction Billing Reports?

Construction accounting software streamlines the process of generating billing reports. This makes the construction accounting process significantly easier and less time-consuming compared to manual methods or traditional spreadsheet software.

• Centralized Data: Construction accounting software keeps all your project details, customer information and billing data in one place eliminating the need to gather information from multiple sources.
• Automated Calculations: An accounting solution can automatically calculate detailed invoices, taxes and other charges reducing the risk of errors and saving you significant time.
• Filtering: The software allows you to easily filter and sort your data based on specific criteria such as project, customer, date, amount or other relevant fields to generate reports that focus on specific aspects of your billing.
• Report Customization: Many construction accounting software programs allow you to customize reports with your company logos, branding and specific data fields you want to include.
• Streamlined Workflow: Construction accounting software can automate repetitive tasks associated with billing, such as sending invoices and tracking payments allowing you to save time.

Improve Your Construction Project Billing Reporting with FOUNDATION®

Clear, accurate reports can transform your billing process into a well-oiled machine. Knowing the different reporting requirements for each billing method and what these reports entail allows you to accurately track finances, maintain an efficient workflow and monitor your project’s progress.

Maintaining accuracy in your construction billing reports allows you to stay up to date on project trends so you can notify the client when any changes occur.

This can help ensure timely payments by fostering client relationships built on transparency and clear communication.

Simplify construction billing reporting with a leading construction accounting software —like FOUNDATION.

We offer formatted billing estimates and contract invoices for AIA, unit price, time & material billing and so much more. With direct integration into your job costing structure, you can guarantee a streamlined workflow and get paid on time.

To learn more about how FOUNDATION can help you leverage construction billing reports to improve project and cash flow management, talk to an expert today.