Optimizing Construction Company Internal Controls: Billing Practices

Billing process best practices for construction company CFOs and accounting managers

Good internal controls around billing practices for contractors in the construction industry are crucial for ensuring accuracy and preventing fraud. These controls help maintain financial integrity, foster trust with clients, and streamline cash flow management, ultimately supporting the contractor’s reputation and long-term success.

Billings in the construction industry are not always straight forward or similar to other industries, as they vary on the type of contract and performance measure.  Contractor billings may be based on many factors, such as performance, estimates of completion, time schedules, contact type, among others. Contractor billings are also impacted by company philosophy, personnel, timing, sophistication, and internal controls.

Contractor billings …What could go wrong?

If your company’s billing practices are not adequate, the impact could potentially be greater than just keeping you up at night. Here are some potential issues that could arise from inadequate internal controls for billing in the construction industry:

• Fraudulent Billing: Increased risk of falsified invoices or billing for uncompleted work
• Payment Discrepancies: Errors in billing can lead to disputes with clients, delaying payments
• Cash Flow Problems: Poor tracking of receivables may result in cash flow shortages
• Cost Overruns: Inaccurate billing practices can mask project overruns and impact profitability
• Reputation Damage: Frequent billing errors can erode client trust and harm the contractor’s reputation
• Compliance Issues: Lack of controls may lead to violations of contractual obligations or regulatory requirements
• Resource Misallocation: Inaccurate billing can misrepresent project costs, leading to poor budgeting and resource allocation
• Loss of Competitive Edge: Inefficiencies in billing may hinder the ability to bid competitively on future projects

Considerations for effective contractor billing processes

Effective billing practices are crucial for maintaining strong client relationships and ensuring timely payments. By prioritizing transparency and accuracy, contractors can enhance trust and streamline their financial processes. The following are best practices to ensure effective billing processes in the construction industry:

• Written billing policies and procedures
• Billing personnel who possess adequate skills, knowledge, and training
• A review and monitoring process
• Proper segregation of duties
• Supportable information for basis of billing computations
• Understanding of the billing terms of specific contracts
• Awareness of state and federal laws to ensure compliance
• Review credit and collection policies

If you need further expansion or have specific questions about these concepts, please contact your Keiter Opportunity Advisor.

Read more Keiter construction industry insights:

• Virginia Sales and Use Tax: Challenges, Changes, and Opportunities for Contractors
• Understanding Variable Consideration in Construction Contracts