Categories
Industry Insight

Progress Billing – A Better Way

Construction Projects typically involve many different trades in order to reach completion. Therefore, it can be just as a daunting a task to submit for payment to a client along the way. Owners’ of the construction projects rely on the project architect, Lender and at times, a third party Inspection Company to make certain that payment is applied correctly and within reason. Once the progress billing definition is truly understood, you will smoothly pass through the steps of preparing as well as submitting everything that is needed to complete a construction project.

Start with a Good Schedule of Values

  • A schedule of values is a list that each dollar amount is assigned to within each area of work that will be completed on a construction project. Construction projects are broken out by each scope of work and are typically separated according to the Construction Specifications Institute Divisions (CSI). Therefore, it is best to separate a project’s Schedule of Values into basic CSI divisions. Examples of these divisions are General Conditions, Site work, Concrete, Steel, etc. Once the areas of the scope are defined, then a corresponding value is assigned to each one so that a percentage complete can be established for each item as progress is made on the project.

Establish the Rate of Construction Retainage

  • A construction contract will typically require that “Retainage/Holdback” be withheld from each application for payment in order to provide the Owner or Lender protection from the Contractor due to not completing the entire project. 5% or 10% may be withheld from each payment to the Contractor and the funds that are held in reserve until the project punch list is completed at the end of the project. Each progress billing must take this retainage/holdback amount into account on each line item of the schedule of values and ultimately on the bottom line of the application.

Establish the Frequency of Progress Payments

  • A progress billing is exactly that, a billing that progresses towards completion a percentage at a time. It is necessary to establish the frequency that each application shall be submitted. A progress billing must specify the current period percentage of completion and the cumulative total – this must be done for both the individual items and the total as well.

Establish the Percentage of Completion

  • Vendors will submit their invoices for payment to a Contractor for the amount of work that they have completed over the period. A contractor must confirm that the work has actually been completed according to this percentage and then must include the corresponding amount within the progress billing to the Owner or Lender.

Submit it Right and Get PAID

  • Progress billings are often rejected by an Owner or Lender because of incorrect completion percentages, incorrect math, or applications that are submitted tardy. In order to achieve profitable progress billing revenue recognition, effect processing is important. Make sure to review vendor invoices and percentage completions with field supervision in order to avoid over/under billings and submit your progress billings report on time!

Premier generates the standard billing applications. The format of this report is user defined. You can choose to format the layout, the number of decimals, whether or not dollar signs are incorporated, apply a default % for retainage/holdback etc.

There are 3 steps required for progress billing:

  1. Add & Configure the Progress Billing Report
  2. Add the Progress Billing Lines
  3. Run the Progress Billing Application

 

Sample Progress Billing

progress billing

 

 

Categories
Job Costing Resources

Importance of Job Cost Reporting

Valuable job cost reports provide crucial information about the current status of a job and can help estimate how you will finish on each job from a cost and revenue perspective. If you have many jobs in progress it can be difficult to manage, which is why it’s important to understand the reports so you can quickly identify exceptions and job overruns before it’s too late and address them accordingly.

In order to ensure you have real-time reports, you will require a truly integrated construction accounting and job costing software solution. It’s important to map out electronic workflow processes to ensure accounts payable invoices, purchase order and subcontract commitments are entered in as quickly as possible and distributed to the proper job allocation. If there are many jobs in progress, there is a strong chance that costs will be incorrectly assigned, but the function of the job costing system makes that highly auditable.

Job costing provides discrete “buckets” of information about each job so that the accountant can allocate costs directly to the job and division code, commonly referred to as the cost item. Advanced software solutions such as Premier provide cost item grouping and up to five levels of job cost breakdown for greater transparency.

If a job is expected to run for a long period of time, then the cost accountant can periodically compare the costs accumulated in the bucket for that job to its budget, and give management advanced warning if costs appear to be running ahead of projections. This gives management time to get costs under control over the remainder of the project, or possibly to approach the customer about a billing increase to cover some or all of the cost overruns. A considerable amount of costing precision is required especially when dealing with cost plus contracts where the customer pays all costs incurred. In most companies, controllers may cost code a job incorrectly which can misrepresent the job cost breakdown. For situations such as that, electronic approval systems are becoming a must have when evaluating job cost accounting software solutions.

Another advantage of utilizing proper job cost tracking is that you can better ascertain whether specific jobs are desirable to pursue in the future or what changes should be made next time bidding on similar work. It can be time consuming to enter in all the costs to the proper cost items but the introduction of mobile apps and proper job cost accounting software allows for real time costing and makes it easier to capture the information, thus leading to greater efficiency in the long run. The lack of detailed job cost reporting is why companies end up moving away from smaller accounting focused programs such as QuickBooks.  Here are a few sample reports that you should be able to run directly out of your accounting job costing system to determine variances, work in progress, and if you are over or under billing. Click HERE to see how Jonas Premier can help your business!

 

Job Cost Reporting #1

Job Cost Reporting #2

Categories
Industry Insight Resources

What to Consider When Looking For Construction Accounting Software

With all of the advancements in software functionality over the years, making a decision on the right construction accounting software that meets your needs can be difficult to say the least. Finding a solution that can seamlessly handle job costing, project management, progress billing, document management, and accounting is not an easy feat. The good news is that an integrated system such as this already exists. With that being said, there are key factors to consider when deciding on which construction accounting solution is right for your business.

Automation

The level at which your accounting system automates processes can reduce the amount of manual entries and double data entry. With less manual entries being made, there will be less chance of errors such as duplicate or incorrect data entry. Automation can also lead to greater employee satisfaction, as the amount of monotonous work will be reduced and more time will be available to complete more value added tasks and close your books faster.

Integration

Without a fully integrated construction accounting solution, consolidating information is difficult to say the least (as most of you reading this are well aware). From the office to the field, an integrated accounting system automatically consolidates information between these functional areas, thus reducing the time and effort it would take to consolidate manually. For example, field workers enter their hours directly from the field using the Jonas Premier Field APP, which then automatically integrates with payroll and all that is left is to approve the information submitted! No more entering hours from a manual worksheet and struggling to get your field workers paid on time.

Flexibility

Each business is different and having the ability to make changes on the fly is essential to staying ahead of the curve in the construction industry today. With a flexible construction accounting system, you can customize and adjust the functionality to adapt with the changing needs of your business. An example of this can be seen with editing prior periods. Jonas allows you to enter information into prior periods, providing you with the flexibility to go back into an accounting period and make changes or updates as necessary.

Reporting

Being able to audit and drill down to the electronic documents allows for reconciliation with ease and improved reporting capabilities. A great example of this is ad-hoc reporting. With Jonas Premier, ad-hoc operational and financial reports can be generated quickly and easily. This tool provides a fast way to generate and review multiple reports whenever you want them and automates the distribution as well.

Customer Satisfaction

With all of the day-to-day tasks we perform, we can sometimes forget about the customers we are dealing with. Having a construction accounting system that creates simple and configurable reports, contracts, and invoices will improve customer satisfaction. Having professional and easily understandable documents sent to your customers will help to reduce any further questions they may have and keep operations running smoothly.

 

Click the link to learn more about Premier Construction Software today!