Application for Payment: Construction Industry — An Overview
When it comes to making an application for payment, construction companies know how tedious and detailed this process can become.
As a contractor, the last thing you want to be doing is filling out copious amounts of paperwork to stay on top of the legalities of the job.
But, most contractors are aware that in order to avoid delayed, or even rejected payments, these administrative tasks are necessary.
In this article, we’ll break down exactly what you need to know to streamline the application for payment process and get you back out on the job site — not buried under paperwork.
Flexbase: Your Construction Application for Payment Solution
It’s no secret that getting paid in the construction industry is a pain.
Oftentimes, contractors wait up to 3 months before receiving payment, making cash flow a huge issue.
Flexbase offers construction companies a one-stop payment automation platform.
With Flexbase, contractors can:
- Track projects
- Request payments; and
- Automate all of the paperwork involved in a payment application.
In addition to streamlining your entire billing process, Flexbase integrates flawlessly with your existing accounting software programs, ERPs, and project management software.
The Flexbase platform and resources are entirely free to use.
Forget paying for expensive monthly or yearly subscriptions that break the bank. Flexbase operates on a small commission of 0.5%.
For example, if the monthly progress payment billed is $5,000, then Flexbase receives $25 — but only after payment is received.
We don’t get paid if you don’t get paid.
What is a Payment Application in Construction?
Newer and less experienced contractors may find themselves asking, “What is a pay application in construction anyway?”
An application for payment in construction is the collection of documents that are interchanged between contractors during the payment portion of a construction job.
Every construction project requires a pay application which is ultimately governed by the construction contract. As a result, the pay application process can differ with each job.
A payment application may also be referred to as:
- Applications for payment
- Pay apps
- Pay application
Construction contracts should be drawn up to include:
- Details regarding deadlines
- Application timing; and
- Details on which documents are required.
What is the Difference Between an Invoice and an Application for Payment?
Construction pay applications involve an array of people within an organization to assemble.
Pay applications typically include...
- Application for payment form
- Schedule of values
- Lien waivers
- Change orders
- Evidence of work
- Invoices and receipts; and
- Prevailing wage reports
...resulting in more of a full payment package, rather than a simple invoice.
In most other industries, invoicing and payments processes are easy.
If money is owed, the accountant or business owner will use simple accounting software to generate an invoice and send it to their customer for payment.
If only it were that simple.
Is There a Standard Contractors Application for Payment Form?
No one payment application form is standard across the industry, and this is what makes the process so time-consuming and frustrating.
All payment apps are specific and unique to the contract of the construction project, which means that subcontractors may end up juggling different pay app requirements on all jobs.
Organizations such as the AIA (American Institute of Architects) have produced a payment application form, and while the document is mostly standardized, it only works in conjunction with two additional documents:
- The continuation sheet (dependent on the original schedule of values); and
- The change order form.
ConcensusDocs also produces a pay application form for construction projects, but there are different applications for GMP (guaranteed maximum price) and lump-sum contracts.
These additional forms are both required to be used by general contractors when applications are submitted to the owner, making it a cumbersome and confusing process.
In addition to these two options for payment application forms, a variety of templates can be found on the internet, but may not contain all of the required contract information.
Incomplete or Incorrect Application for Payment? Construction Companies Beware
It’s up to the subcontractors to be diligent in reading contracts very carefully before submitting these template applications to be sure that the requirements of the contract are met.
Missing a deadline, or forgetting to include a required document can cause:
- Costly delays in payment
- Waiting until the next pay period to submit another pay application; or
- Even rejection of payment altogether.
Subcontractors must be thorough and detailed and provide as much evidence as they can to back the request so that the application is more likely to be approved by the GC or owner.
The process for GCs can be an equally complicated one as payment applications from subcontractors must be collected, tracked, and kept organized, which makes follow-up almost always inevitable.
Some subcontractors will provide more detail than others, so each subcontractor must understand what their responsibilities are when submitting payment apps.
How Can You Simplify an Application for Payment? Construction Billing Solutions by Flexbase
Flexbase allows construction companies to send automated payment applications to the exact contract specifications, so that you never miss a deadline.
We take care of every piece of documentation required to fulfill your contractual duties and help you get paid sooner.
Don’t settle for anything less — Flexbase is the all-in-one construction billing solution that integrates flawlessly with the software you already use.
Stop cash flow problems and the inevitable headaches that follow and try Flexbase today.
7 Supporting Documents Typically Included in an Application for Payment in Construction
The construction industry is famous for a complex, and often confusing, payment process.
In order to get paid in a timely fashion, it’s critical that contractors accurately complete and submit pay apps right the first time.
Mistakes lead to costly delays — and even claims.
When submitting an application for payment, construction companies and subcontractors must include the following supporting documents.
#1: Application for Payment Form
Most often used is AIA’s payment application form known as G702 Application and Certificate for Payment.
To correctly complete this form, the following information is required:
- Project name
- Property owner/contractor/architect name
- The payment application number
- Prior dates covered by that specific payment app
- Original contract amount
- Any change order
- Value of work completed to date
- Retainage
- Total of any prior payments
- Amount currently due
- Balance remaining
The first page of the payment application will also have a spot where the direct contractor and architect can certify the labor and materials furnished and any amounts outstanding.
#2: Schedule of Values
Payment applications are based on an overview of the project — known as a schedule of values — which breaks down larger amounts into itemized aspects of the project and assigns time frames in order to assess progress on the job.
In addition to justifying the expenses within the payment application, a schedule of values is also used in conjunction with lien waivers which are typically expected to be provided.
#3: Lien Waivers
Lien waivers are a very important step toward receiving payment for work completed.
The purpose of a lien waiver is to protect the payor by waiving the rights of the payee to file a lien on the property after payment has been received.
Depending on the project and contract details, a lien waiver can be requested at the time of processing of the payment application or may be provided along with the pay app.
Securing a lien waiver may actually speed up the payment process.
#4: Change Orders
Change orders are written orders by project owners that direct contractors to change the:
- Requirements
- Schedule; or
- Contract amount.
While change orders can cause frustration, they are a common occurrence in the construction industry and subcontractors can go unpaid when changes are not documented correctly.
When changes are necessary to the original scope of a contract, such as work added or removed, a change order must accompany the payment application to reflect the update.
#5: Evidence of Work
With so many moving parts on any given project, it’s an important part of any project manager’s job to properly document construction.
Written records have the potential to be unclear, fraudulent, or altogether wrong.
Documentation of a project’s lifespan is fine, but providing visual evidence can quickly curb any potential disputes.
Visual evidence of work can be provided simply and quickly with the use of:
- Cell phone or tablet cameras
- Drones; or
- 3D/360 Cameras
Visual documentation offers significant benefits, including:
- Visual job status and progress history
- Increased communication with property owners
- Liability protection
Written records only go so far.
By simply adding pictures as evidence of work, everyone involved in the project stays informed, and the chances of facing a dispute or a claim decrease significantly.
#6: Invoices and Receipts
It may seem obvious, but supporting your payment application with proof of purchase, for any materials or labor, is an important part of the process.
Keep records of, and submit all...
- Invoices
- Payrolls
- Material delivery confirmations; and
- Purchase orders
...to include as the backup to your application for payment.
#7: Prevailing Wage Reports
Where government contracting is concerned, a prevailing wage is defined as, “the hourly wage and overtime, paid to the majority of workers, laborers, and mechanics within a particular area”, usually the union wage.
Submitting a certified prevailing wage report with an application for payment is a mandatory step as failing to pay prevailing wages on government projects within specific states can result in prosecution.
How Often Are Applications for Payment Typically Submitted?
Because the pay application process is governed by the construction contract, the billing cycle will vary from job to job.
In most cases, payment apps should be submitted monthly on an agreed-upon date, such as the first of every month, even if the work is not completed.
These are called progress payments and they work in favor of the project owner or GC as well as the subcontractor.
Progress payments allow the owner to make partial payments as the job is carried out, and for the sub to collect money consistently which in turn helps fund the continuation of the project.
Every application payment filed must include all of the information required as per the construction contract.
For subcontractors, this can mean hundreds of pages of documentation for every single progress payment.
Payment applications have always been a necessary evil in the construction industry, but with Flexbase, they don’t have to be a nightmare anymore.
Streamline Your Application for Payment Process. And So Much More — With Flexbase
Payment applications have never been easier with automation software from Flexbase.
Mitigate cash-flow problems, drastically reduce your administrative time, and get paid sooner with a free subscription.
With Flexbase, you can:
- Track projects
- Request payments with our fully automated payment platform
- Free up your email and communicate directly with customers through our platform
- Send legal notices for late payments
- Apply for working capital
- And more...
Not only will you be saving valuable time and energy, but you’ll reduce the risk of human error when you streamline your billing process with Flexbase.
You can reap the benefits of Flexbase, including:
- No subscriptions or licenses are required
- Our full platform is immediately available for use after getting started
- You only pay when you receive a payment
What are you waiting for? Schedule your free demo today.
