Construction invoices come in many forms: lump sum invoices,progress billings, and time and materials. For many years, the standard for progress billings in the industry has been the AIA G702 and G703 format. Due to the high cost of purchasing the forms, many contractors use Excel spreadsheets to simulate them and still provide the same information. This can be problematic, however, as the required data entry can lead to errors andover billing. Since the process isn’t automated, delays in invoice submission and review are common.
What if there was a way to get past all the problems with the AIA format? What if construction progress billing could be smarter, better, and easier? The good news is it can. However before we get into that, let’s look at the problem more closely.
How AIA billing forms work
The American Institute of Architects (AIA) has developed standard contract forms and templates that are used by a majority of companies in the construction industry. Contractors use forms like G702 and G703 to bill contract portions as work progresses, becoming an industry standard. Using these forms, contractors can bill for completed contract portions and provide a summary of contract status, facilitating quick invoice review and approval.
Moreover, both forms are submitted together, along with any required billing documents depending on contract terms. The G702 form offers a project contract summary and space for the architect’s approval of the payment to the contractor. Following suit and working in tandem with the G702 we have the G703 form, which is a line-item breakdown of the contract. It provides a summary of the amounts billed and completed to date.
To complete an AIA billing, contractors rearrange G703 values, enter billing amounts for each line item, and verify accuracy. When using Excel, contractors must manually perform all data movement, leading to potential errors. Certain software offers AIA-like invoice formats, enabling contractors to leverage automated data movement and calculations.
Problems with the AIA billing forms
The main issue with AIA billing forms, especially when completed manually or in Excel, is the high likelihood of errors. Numbers might transpose, formulas could malfunction, or data might not transfer accurately between columns. All these issues can cause problems with invoice calculations, delaying project payments, and impacting contractors and vendors down the line.
Additionally, math and data entry errors can lead contractors to overbill, requesting more than their contract amount. If a GC or owner isn’t paying careful attention, they could end up overpaying.
Discrepancies in Contract Amounts
Contractors must ensure the contract amount’s accuracy and present the required information as per the owner’s preferences. Clarity is key because discrepancies in contract amounts can easily occur without attention to detail. Contractors and subcontractors communicate to decide on the invoice presentation and contract breakdown.
Understanding Billing for Change Orders
Contractors may not know how to bill for change orders when using an AIA form. Some GCs allow billing for unapproved change orders, while others require execution by all involved parties before billing.
Change orders can be listed on the billing form without approval, but payment isn’t guaranteed. To add to the confusion, subcontractors’ accounting departments might be unaware of approved change orders, leading to billing uncertainty.
Providing Backup for a Progress Invoice Can be Difficult
Another challenge lies in collecting the documents necessary to provide backup for progress invoices. Essential documents like lien releases and payroll reports come from various sources and lack centralization. Gathering and submitting all documents with the invoice requires time, preparation, and organization.
Then there are some contractors who submit them after the owner or GC’s due date. Debatable just as unsatisfactory, some contractors forget to submit their invoices altogether! This means potentially waiting another month for payment for work completed in the current month. Furthermore, causing cash flow difficulties and potential project delays when a contractor is unable to pay their bills.
Move your invoicing into the 21st-century
Smart invoicing offers a solution to overcome the aforementioned issues with AIA forms. With smart invoicing systems, like MX Build, contractors have found the solution to all their problems.
I know what you’re thinking, what do invoicing systems entail? Avoiding math errors, ensuring correct contract amounts, billing for approved change orders, organizing backup documentation, and submitting invoices promptly. All just a few benefits of invoicing systems.
MX Build makes invoicing simpler for construction project teams. It automates the invoicing process and ensures that invoices are complete with all the backup documentation they need. It includes features like:
- Automatically sending reminders to subcontractors to submit an invoice
- Invoice forms that are automatically generated with the correct contract amounts and approved change orders
- Forms that automatically calculate the amount due for the period as per the contract terms, preventing overbilling
- The ability to request and collect backup documents, including lien releases, payroll reports, invoice copies, etc.
- Routing the invoice to the general contractor for approval once the invoice is complete and submitted
- Tracking the invoice approval process, letting subcontractors know when there are issues so they can fix them promptly
- Subcontractors can track released payments and receive funds promptly through this system
We handle all the headaches caused by the outdated AIA billing process. Now the subcontractor invoice process is smooth and easy, ensuring that everyone gets paid promptly.
MX Build offers general contractors and subcontractors an automated, verified, and organized invoicing system, freeing them to focus on their businesses and projects