There is no mystery around the purpose of an invoice issued for construction work.
All too often, however, I see contractors adding in all sorts of weird and wonderful things into their invoices that have no business being there. The consequences are confused clients who are not sure what to pay, and befuddled bookkeepers who cannot fathom what you were trying to do. No wonder many I talk to are unable to answer this simple question: ‘What are you owed for this project?’
The reason for this problem is that very few contractors do monthly reconciliations of their project: Total Value of Completed Work less paid-to-date, less retention [if applicable] equals monthly claim. Instead, the contractor will simply issue an invoice that does not explain how it sits within the project as a whole. It is for this reason that I often see the contractor issue invoices for $85,000 for a job where the total value of works completed is $62,000. This is ‘over-invoicing.’
Here are a few of the items making their way into innvoices:
(1) Reconciliations: The invoice’s ‘Description’ column ought to contain the detail of what is being charged for, but all too often a contractor will use that space to do a simple reconciliation in order to explain how the invoiced amount is calculated. That is not the purpose of this space. Furthermore, the calculation is mostly incorrect or does not take account of variations. A reconciliation is a separate document and a separate exercise that supports the invoices and invoiced amounts. A reconciliation cannot exist inside an invoice.
(2) Double Invoicing: This is common and is a result of poorly completed reconciliations. The contractor will realise that some amount, say $5,000, has not been paid from a previous invoice and so will add it to the next invoice because it has not been paid. This is one of the causes of ‘over-invoicing.’ This then repeats over several invoices such that that same work might be charged on half a dozen invoices. The correct approach is to produce a reconciliation that shows the paid to date, and amount owing, along with the current invoice and any other unpaid or part paid previous invoices. That way it is the reconciliation that is doing the job of showing amounts owed from previous invoices. Only invoice for work once.
(3) Variation explanations: The invoice is not the place to write lengthy explanations of each variation, along with rates and by whom it was approved. A simple variation number and amount is enough. That is because variation details ought to be on a separate variation register that can contain all this information. That register can then be sent as part of the claim or invoice documents.
(4) Credit explanations: It is not uncommon for the contractor to agree to discounts or the removal of some charges in the form of a credit note. Again, the invoice is not the place to explain the hows and whys of the credit. This information belongs in the reconciliation. To make things worse, I have seen credits applied more than once because they are carried over from one invoice to the next!
(5) Paid to Date: This is the most important number in your claim, and yet it is so poorly used. This number can appear on an invoice provided you can be sure that certain payments have been made against a specific invoice. But if they are ‘payment on account,’ you should show ‘paid to date’ in the reconciliation as a subtraction from total amount invoiced. That is because you cannot say what has been paid against any invoice in particular (and really, you don’t have to.)
Another problem is not showing this figure at all. You must always show what remains unpaid at each claim. On big jobs, it is easy to lose track of how much you have been paid. Often, for example, a contractor will think he is owed $60,000 but after a reconciliation it comes to $190,000. This is because no one has been paying attention to ‘paid to date.’
(6) Nothing: And finally the twist at the end. Too many invoices have nothing in them. An example is an invoice that says ‘Claim One.’ If this is not accompanied by a reconciliation that explains how the invoiced amount in ‘claim one’ is calculated, then this invoice fails immediately because it does not even advise the client what work you are claiming for. This also fails in adjudication as it does not fulfil the job of a valid claim under the Security of Payment Act.
In short, don’t go the other way. Use the ‘description’ part of your invoice for its intended purpose. Tell the client what you are charging them for.
All the above aside, a nonsensical invoice can do great damage to you in the eyes of your clients, and if it comes to it, a court of adjudicator. An invoice is only one of the documents that support a claim; others include variation registers, reconciliations, and statements of account. An invoice cannot do the job of all of these documents.