Invoices and receipts play a huge role in the construction industry — they’re how you get paid for services rendered and how you pay subcontractors, vendors, and suppliers. The natural complexity of construction projects makes invoice and receipt handling more complicated, too.
Your accounts payable (AP) team captures and manages receipts and invoices from multiple construction sites all at once, in various stages of completion and with different trades and heavy machinery being used. And while invoices and receipts both record your construction company’s transactions, they need to be handled differently.
Every receipt, invoice, and reimbursement must receive the accurate cost code. If your accountants or AP admins have trouble differentiating between invoices and receipts, you could end up dealing with processing errors that negatively impact the company’s financial management. That’s why it’s essential to understand the differences between receipts and invoices, including their common misconceptions, and learn invoice and receipt management best practices.
Invoices are your construction company’s bill of service for work you’ve completed. You may send invoices to clients when you reach certain project milestones or after you complete the job. Invoices are issued before you’ve received payment from your client (except a deposit). They detail what the client owes, how they should pay you, and the due date for payment.
Construction companies also receive invoices from a project’s subcontractors, suppliers, and vendors. Your company is responsible for paying these invoices according to the invoice’s terms.
Whether your business is sending or receiving invoices, they all must contain the following components:
Receipts are sent as proof of payment once the payment has been made, confirming that the buyer received the goods or services and the seller obtained payment. Your construction company will acquire receipts for purchases, such as building supplies, equipment rentals, or vendor and subcontractor services. You’re also responsible for sending receipts once you’ve received payments owed to your company.
All receipts must include:
The most significant difference between an invoice and a receipt is that invoices are issued before a payment is made to request payment, while receipts are a record of the payment being made. Invoices are a notification of the amount that’s due, and receipts show the total amount paid. For accounting purposes, receipts are recorded as income, while invoices are recorded in your accounts receivable.
Another key difference is that your construction company can only use receipts to claim business expenses. Since invoices are not a confirmation of your payment, they can’t be used as a record of your business expenses. The only exception to this rule is if your invoice was marked as paid and has proof of payment attached.
One common misconception is that you must send or receive an invoice for every transaction. While invoicing is always recommended and offers businesses legal protection when disputes arise, they’re not mandatory for transactions where payment is immediately collected. For example, if a crewmember purchases building materials or equipment for a job at a store, they’ll only be handed a receipt.
Another misconception is that receipts and invoices must be printed out and physically sent to customers and sellers, but this isn’t the case. Electronic invoices and receipts are a perfectly valid form for recording completed transactions.
Invoices and receipts ensure you’re getting paid for the construction work you’ve completed and allow you to expense business-related costs. Both are critical for preventing future payment disputes and keeping your company’s cash flow running smoothly. That’s why following best invoice and receipt management practices are key to maintaining efficient AP operations and your company’s overall financial health.
Software can help streamline your entire receipt and invoice management process by eliminating manual data entry and directing all invoices and receipts to one place. From there, you’ll have complete, real-time visibility into every construction project, letting you check records for accuracy, track expenses, and create invoices fast. This technology typically integrates with your accounting ERP to simplify AP receipt and invoice handling processes.
Consider hh2 for your invoice and receipt management needs. Our industry-specific software solutions connect your field with your back office, offering AP automation so you can handle invoices, receipts, and reimbursements with ease. Plus, with features such as project tracking and payment management, you can rest assured that you’re billing to the right job codes and keeping cash flow on track with timely payment. Book a demo to learn more.