There are different types of billing methods in the construction industry. One of them is time and materials billing. Some general contractors prefer this procedure, as it shifts most of the risks onto their customers. Any costs incurred come out of the customer’s pocket, not the contractor’s.
T&M billing allows them to focus on their profits and concern themselves less with the unpredictable nature of contracting. While the agreements are straightforward, the act of putting together a bill can be daunting because it is necessary to collect all receipts throughout the project and any supporting documentation.
Factor in time for manual data entry (and the mistakes that tend to come along with it), and the process gets even more convoluted. Thankfully, there is time and material billing software that quickly and easily generates accurate, professional invoices. Learn how to use this method below!
What is time and materials billing?
The time and materials billing format involves the contractor charging the customer for, quite literally, time and materials. The contractor bills for every man-hour spent on the project, as well as any materials purchased for that job. Labor rates are typically outlined in a simple format in the contract, though these rates can vary depending on the tradesperson working on the project.
On top of the labor rates and materials costs, some contracts allow the contractor to mark up the cost of the materials a bit. Again, this is something the contract will clearly outline, but it does help the contractor maintain a healthier profit margin. Should the customer decide to use high-end materials, the contractor’s profit will grow accordingly.
To calculate the time and materials invoice, a contract needs to multiply the man-hours by the agreed-upon rate for each trade and add it to the materials costs (plus the markup, if contractually allowed). This is a very transparent billing format where the customer is aware of everything other than the hourly rate paid to the crew.
Time and materials contracts are most suitable for projects where the scope isn’t crystal clear. If the customer is undecided or the project is ripe for unforeseen costs, it helps to keep the contractor and customer on the same page. It also does away with pinpoint estimating, allowing contractors to get to work right away.
This billing format does have a few disadvantages. Contractors have to be meticulous with record-keeping, from receipts to man-hours. One missed expense, and the profit margin shrinks. Also, the costs to get the project off the ground are on the contractor’s shoulders, making timely billing a sink-or-swim proposition.
How to calculate time and materials billing
The first step for a contractor to be successful in time and materials billing is meticulously detailed record-keeping. This includes documenting labor, equipment rentals or purchases, and materials.
Contractors need to log each of those costs into the construction software’s accounting system to ensure they can charge when it’s time to bill. They also need to consolidate any separate ledgers, time logs, or job cost entries with the job. Any cost accidentally left out or forgotten comes directly out of the contractor’s profit.
Creating the bill is easy! While in the time and materials billing module, simply select and add the costs and labor hours. You can set each cost to bill with the current invoice, save them for later, or mark them as never billed.
Once you select all the costs and their billing designations, our software will automatically calculate the T&M invoice and determine the appropriate rate for each man-hour by the labor code. If the contract allows, you can set the time and materials billing module to add set percentages for materials markups.
After reviewing the invoice, our system will send the bill automatically via email to your customer. It is possible to open the document from any internet-enabled device, drastically reducing the amount of time it takes to get paid.
What documents should be included in time and materials billing?
Each project has different billing requirements, including what supporting documents the customer wants with the invoice. Premier Construction Software document management system makes it easy. Most time and material billings will include the following backup.
The invoice should provide a summary of the amount, including the number of man-hours, the labor rate, material expenses, and the overall markup.
Include a detailed report of the labor hours and costs for which you’re billing. The customer will want to review this list for accuracy and use it for reporting purposes.
Copies of invoices and receipts
Most customers will want copies of your accounts payable invoices and store receipts for smaller purchases that are being used to determine the invoice amount. You can avoid spending hours on this by using a document management tool to automatically add copies of pertinent invoices to the email.
Copies of timesheets or certified payroll reports
Customers may also want to review copies of your employee timesheets showing the hours worked. If the project is prevailing wage, you may also have to provide certified payroll reports, that list all the employees on the project, the hours they worked each week, and certify that they were paid the correct wages and benefits.
Lien releases or waivers
Some customers may require copies of lien releases or waivers from your vendors and subcontractors as proof that they have been paid.
Time and material billing don’t have to be a waste of time!
Time and materials billing for construction projects requires a keen eye for detail. Being able to put your finger, or mouse, on every receipt and timesheet that applies to a project will ensure you aren’t leaving money on the table. The faster and more accurate this process is, the better.
Using Premier’s document management system with the time and materials billing module will help streamline this process. You’ll be able to create accurate invoices instantly, free from missed line items or forgotten costs. With electronic signatures, you’ll even reduce the amount of time it takes to get paid.
If your team struggles with assembling time and material billings, let us show you a simpler and easier way. Book a demo today to see it live and gain financial control and clarity of your projects!