What is Substantiated Billing in Construction? Guide for Contractors

A single billing error can cost your construction company thousands of dollars, leading to payment disputes or even lawsuits and cutting into your profitability. In an industry with tight profit margins, accurate and timely billing can mean the difference between building sustainable growth and losing your business. To avoid compliance issues and delayed payments, many construction companies turn to substantiated billing.

In simple terms, substantiated billing in construction involves sending detailed reports or documentation alongside each invoice to verify costs and ensure accuracy. Providing key support documents, such as payment terms, employee timesheets, equipment usage reports, change orders, and receipts of materials purchased, acts as proof of your costs, reducing the risk of client disputes.

Substantiated billing is also crucial for your own financial health and project success. It helps encourage prompt payments and speeds up the billing cycle for better cash flow management. Contractors and project managers also benefit from it, as it allows them to efficiently track invoices and project costs, manage change orders, and ensure compliance with contract and regulatory requirements. 

Read on to learn more about the role of substantiated billing in construction, including why it’s important, common challenges contractors face, best practices to ensure efficient billing processes, and how technology like construction accounts payable software can simplify substantiated billing.

The Role of Substantiated Billing in Construction

From improving management of company finances and ensuring project success to preventing disputes and compliance issues, substantiated billing is important for your daily operations and long-term success. 

Ensures Proper Documentation

Construction projects have many moving parts, and substantiated billing ensures each step is documented for invoicing and payment purposes. For example, imagine there is a modification from an original agreement due to a higher cost of materials or scheduling conflicts. A substantiated billing practice would include this change order when invoicing the client to validate the costs. Providing all necessary documents up front, including receipts and a breakdown of project-related expenses, ensures you correctly allocate costs to each job or project for accurate invoicing and payments.

Prevents Disputes and Legal Issues

Substantiated billing offers greater invoice transparency to clients, providing a detailed breakdown of all project-related expenses, including cost of materials, labor and equipment, and work completed. Increased transparency builds trust by giving clients confidence they’re being charged appropriately while preventing discrepancies that can lead to disputed payments or lawsuits. Substantiated billing also acts as supporting documentation for your position if a dispute were to arise.

Reduces Compliance Risks and Payment Delays

Managing compliance with various industry regulations and client contracts can be time-consuming and complex, but substantiated billing helps simplify the process by ensuring that your billing practices are accurate and complete. With it, you can quickly identify and resolve missing or incorrect cost coding, expenses, or other billing errors that cause payment delays and ensure you’re adhering to all requirements for compliance purposes.

Struggling with delayed payments and manual invoicing? Automate substantiated billing with hh2 Document Flow — schedule a free demo now!

Potential Obstacles to an Efficient Substantiated Billing Process

While substantiated billing offers your construction company many benefits, its effectiveness relies on the right invoicing processes and tools. Paper-based accounts payable (AP) processes are killing construction efficiency. Contractors face:

• Delayed invoices due to slow approvals.
• Payment disputes because of missing documentation.
• Compliance risks from inconsistent cost coding.

For example, construction companies that use manual, paper-based AP processes may face slower invoice processing and approval times due to the physical handling of paperwork and lack of organization. Their AP team may have to spend time chasing down missing information or route paperwork through numerous departments or managers, which can lead to further delays or bottlenecks within the reconciliation and invoicing process. 

They also experience a lack of real-time visibility between field teams and back-office staff. Project managers, controllers, and AP teams may receive critical project information days or weeks after it happens, making it more difficult to keep projects on schedule and within budget. Additionally, manual AP documentation and data entry methods are more prone to errors, which can lead to duplicate expenses, overpayments, or client disputes. 

The solution? AP automation for construction. Let’s break down how technology simplifies substantiated billing.

Streamline Substantiated Billing With AP Automation and Integration

Fortunately, you can automate invoicing for contractors and improve construction invoice tracking using cloud-based AP automation for construction, such as hh2’s Document Flow. Learn how hh2 Document Flow automates invoice capture and approval for contractors.

The Role of Cloud-Based AP Automation

Cloud-based AP automation for construction software, like hh2’s Document Flow, is essential for simplifying substantiated billing. It helps contractors, project managers, controllers, and AP teams track project finances by digitizing documents, such as credit card receipts and invoices, and centralizing them into a cloud-based platform that staff can access from anywhere. 

Document Flow also automates numerous accounts payable processes. With its smart mailbox feature, the software captures invoicing documents by email as they come in and automatically converts them into digital files before routing them for approval, saving your team time and reducing manual errors.

It also offers mobile expense reporting so employees can simply snap a photo of their receipt while in the field, assign it a job or cost code, and enter it into your AP system with a few clicks. Document Flow also automates your reconciliation and approval process, routing documents through customizable, multi-level approval pathways to prevent bottlenecks and ensure your financial data gets in front of the right people.

Integration

Top construction accounts payable software seamlessly integrates with your accounting and enterprise resource planning (ERP) systems. hh2 integrates seamlessly with Sage 300, Trimble, Foundation, and more — allowing you to instantly sync job, expense, and coding data from the field into your back-office software as it’s created. Integration eliminates paper-based AP documents and manual tasks, streamlining and speeding up your reconciliation and approval processes for more efficient substantiated billing. 

Access to Real-Time Data

You’ll gain greater visibility into your expenses and transactions with access to real-time field expenses and invoicing data — you won’t wait days to view data from the field or get surprise expenses. You can quickly catch errors like duplicate invoices, overpayments, or unauthorized transactions before they hit your books for smoother approvals. Software like Document Flow also ensures costs are accurately allocated to jobs or projects for better financial reporting and to create strong audit trails.

4 Tips for Streamlined Substantiated Billing Processes 

To streamline your construction billing processes, it’s important to follow these best practices:

• Ensure clear billing terms: Clear billing methods and payment terms, including any billing milestones, lay the foundation for expedited payments while reducing disputes.

• Develop standardized invoice workflows: Establish a consistent process for handling invoices, from accepting and capturing data from invoices to how data is coded and where data is routed for verification and approval. 

• Automate document collection and approval: Once you’ve standardized your invoicing workflows, you can automate the steps within it. Automated invoicing for contractors, like Document Flow, uses advanced OCR to automatically collect data from invoices and integrate it into your accounting or ERP software. Automating AP approval pathways also speeds up the billing process.

• Use AP software for verification and compliance: This software digitizes project costs, reducing manual errors and streamlining verification. It also creates clear audit trails, allowing your teams to adhere to contract and industry regulations.

How Substantiated Billing and AI Will Continue to Drive Efficiency in Construction

Substantiated billing in construction has become simpler thanks to cloud-based technology and automated workflows. AI-powered features automate and streamline invoice processing and approval and drive real-time insights so construction companies can make better financial decisions. 

hh2’s construction accounts payable software harnesses the power of automation to streamline every step of the substantiated billing process. From automating invoice capture and processing to seamless integration with accounting and routing real-time data through custom approval workflows, Document Flow makes the billing process more efficient while reducing errors and compliance risks. 

Eliminate payment delays and disputes! See how hh2’s Document Flow automated invoice approvals, prevents compliance risks, and gets you paid faster. Get a free demo now