Best Practices For Construction Payment Management

Expense Management
8 min
Nov 16, 2022

In the construction industry, getting paid on time doesn’t happen nearly as often as it should.

Even if all parties submit each step of their paperwork on time, you could be left hanging for weeks, if not months waiting for what you’re owed.

Fortunately, good payment management practices can help speed the process along.

By the end of this guide, you’ll be well-versed in construction payment management best practices so you can start getting paid sooner.

Flexbase rewrites the way the construction industry handles payment management.

On top of automating the entire payment process, our platform also ensures you get paid sooner with tools like:

  • Project tracking
  • Lien waivers
  • Payment applications
  • Legal reminders
  • And much more

Staying on top of your invoice and billing and practicing good payment management steps will allow you to have positive cash flow.

But let’s say you choose to (or need to) apply for additional working capital.

Flexbase makes that process easier, too.

We’re able to integrate with all of your company’s financial data, which makes getting working capital so much quicker.

You’re able to borrow capital and boost your cash flow instantly.

But how?

The key is we already have access to the information that would normally take the banks weeks to review and approve.

Your Flexbase subscription allows our software to integrate with…

  • Invoicing tools
  • Project management tools
  • Personal bank accounts; and
  • Business bank accounts

…that lenders look at to evaluate your funding application.

We’re then able to share that information with our preferred lenders, allowing you to be automatically pre-approved.

With the Flexbase pre-approval system, you can see your approval status in 24 hours — gone are the days where you’re stuck waiting for cash flow to get your next project started.

Our ability to:

  • Streamline
  • Simplify
  • Automate; and
  • Integrate

…your construction payment management processes, will leave you wondering why you hung onto the manual way for so long.

Schedule your free demo to see how Flexbase can keep you on top of your cash flow and make your payment processes that much more efficient.

Payment Processes for Commercial Construction

You have an overview of how Flexbase changes the game for construction payment management.

But to fully grasp how we can help you, we must step back and take a big picture look at how the payment process works in commercial construction.

The challenge in construction payment is that you never get paid on time.

And one of the reasons for that is the sheer number of processes you have to follow in order to submit an invoice and actually get paid.

The way invoicing in construction works is ultimately from the bottom up.

From there, the payment process works like this:

  1. The subcontractor puts together the invoice and sends it to the general contractor (GC).
  2. GC puts together all of the invoices from the subcontractors and submits them to the client.
  3. The developer will send the invoice and related documents to the bank.
  4. The bank or lender will verify the invoices and release the payment.

And even if everything is done in a timely fashion, it still takes at least a month to process the payments and for you to get paid.

Payment Applications

In the construction industry, an application for payment is the collection of documents that are exchanged between contractors during the payment process of a construction job.

Applications should be very detailed, and include:

  • Itemized lists including the cost
  • Quantity of items required for the project; and
  • A description of all items being furnished.

Since every construction project requires a pay application (and no two projects or contracts are exactly alike) the pay application process can differ with each job.

Payment applications outline exactly how a contractor is to be paid and often include the services, materials, and labor costs that are associated with the job and are therefore executed under the contract terms.

Applications for payment are more than a simple invoice — and typically contain…

  • The application for payment form
  • Schedule of values
  • Lien waivers
  • Change orders
  • Evidence of work
  • Prevailing wage reports

…resulting in a more full payment package.

Invoicing and the process to receive payment is easy in most other industries.

Normally if money is owed, the accountant or business owner will use simple accounting software to generate an invoice and send it to their client, who pays them promptly.

Unfortunately, it’s not that simple in construction.

Because of all the necessary additional paperwork needed to compile an application for payment in construction, it can be easy to misplace or group documents incorrectly.

When you upload your contract to the Flexbase app, however, our team will review all of the payment details and set up your account to send:

  • Automatic applications for payments
  • Payment reminders; and
  • Legal notices if required.

Creating a Schedule of Values

The schedule of values (SOV) lists every work item on a job, including the cost of the item, and represents the construction project as a whole from start to finish.

The SOV gives the GC or owner the ability to see the portion of each item completed and is normally submitted along with the payment application.

This allows the GC/client to agree to or dispute the progress payment.

The SOV is used to monitor the management of cash-flow and progress payments on the project.

Schedule of values are used mostly on:

  • Commercial
  • Public; or
  • Complex residential projects.

Generally, only GC’s and second-tier subcontractors will need to fill out a schedule of values.

However, a schedule of values can provide valuable insights and oversight to contractors on any construction project.

Why Is A Schedule of Values Important To Successful Construction Payment Management?

Cash flow is of the utmost importance to any construction company or subcontractor.

The schedule of values represents the cash flow on a project.

A clear and accurate SOV is an essential part of successful construction payment management.

Any delayed payments or unscheduled changes could be devastating, even for contractors that are typically well-prepared to combat cash flow issues.

It’s used and referenced by all levels of a project:

  1. GC’s look to a schedule of values to keep track of the project’s progress and ensure the work is moving along as it should.
  2. Construction companies, in turn, use the SOV to justify the appropriate progress payments.

An SOV is a crucial management tool in the payment application and payment management processes because it allows for an accurate evaluation of the progress of a project relative to the contracted plan.

Since cash flow is measured by the SOV, the timing of payments depends on how well the SOV was constructed by the GC.

Using Progress Payment Software

We know how important progress payment software is to your accounting process and to your business.

Progress payments benefit everyone involved on a project from top to bottom by allowing owners and/or GC’s to review the subcontractors’ work before it’s complete, and, more importantly, resolve disputes before the project is over.

With Flexbase, not only are you able to automate your entire payment process but you also:

  • Increase efficiency
  • Regain control
  • Mitigate the risk of errors
  • Gain insights and visibility

Let us work as your progress payment software. Our platform integrates seamlessly with your current accounting and project management software to create a streamlined and flawless payment process.

Another way we prove that we work for you? We don’t get paid unless you get paid.

Flexbase operates on a commission of just 0.5%.

Say you send an invoice progress payment for $10,000 — Flexbase will receive just $50, but only after you receive payment.

Managing Invoices

Properly invoicing is arguably the most crucial step to managing your company’s cash flow successfully.

Between…

  • Start-up costs
  • Slow payments; and
  • The general nature of a credit-heavy industry

…it’s not rare for a construction company to find itself in a bind.

The key to avoiding a negative cash flow is to create accurate and timely construction invoices ensuring you get paid sooner.

Flexbase takes away the hassle of manually managing invoices and significantly reduces the time spent on:

  • Applications for payment; and
  • Compliance and lien waivers

…so you and your team can get focused on the project at hand.

Manual Construction Payment Management

Almost all current construction companies continue to do their accounting and construction payment management processes manually.

Some companies may have some assistance via QuickBooks or other construction payment management software, but they are still doing most of the work typically through Microsoft Excel — making it a highly manual and tedious task.

Business owners and/or accountants often spend dozens and dozens of hours on paperwork.

If you’re thinking, “There has to be a more efficient way!” — you’re right.

How To Simplify Construction Billing and Payments

The solution seems simple enough — switch from manual construction payment management and invoicing to an automated system.

Flexbase is the all-in-one payment management solution that integrates flawlessly with the software you already use.

Your subscription allows you to send automated payment applications to the exact contract specifications, ensuring you never miss a deadline.

Utilize Construction Payment Management Software

An effective budgeting tool is essential for efficient management of the construction project budgets and cash flow and is the way of the future.

Payment management software can also help by assisting with cash flow-related tasks like:

At Flexbase, we automate the entire payment process and act as your construction payment management software.

Our platform will take care of:

  • Automating your schedule of dates to submit invoices
  • Submitting the correct invoice and payment forms
  • Staying on top of regulations

How Flexbase Can Solve Your Construction Payment Management Problems

Flexbase has streamlined the payment process for construction companies and contractors alike by automating every step.

Let us take care of all the construction payment management steps for you, including:

  • Project tracking
  • Applications for payment
  • Legal reminders
  • And much, much more

The Flexbase platform integrates fully with the accounting and construction payment management software you already use, making the transition seamless.

And what’s more, our resources are 100% free to use. You don’t pay unless you get paid.

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