What is underbilling in construction Avoiding cash flow issues 2020

>> YOUR LINK HERE: ___ http://youtube.com/watch?v=yNC9xCP9iTM

The problems caused by underbilling are all too common in construction. Learn the basics of underbilling in this video and ask for expert advice at https://www.levelset.com/payment-help... • Underbilling in construction occurs when a contractor completes a certain amount of work on a project during a billing cycle, but doesn’t bill their customers for all of the work completed during the billing cycle. For example, if a contractor completes 30% of a project, but submits a progress bill to their customers for just 20% of the overall contract value, the contractor has underbilled by 10%. • Why would a contractor not bill for all the work that they have done? Some of the bad practices that lead to underbilling include: • -Slow construction billing practices • -Underestimating project costs • -Unrecognized overbilling at the beginning of a project and underbilling towards the end • -Weak project management control • -Unapproved change orders • Slow construction billing practices happen, for example, when a contractor is supposed to get their progress bills to the customers on the 1st of every month, but doesn’t get to it until the 10th. That leaves 9 days of work and costs off of the invoice and effectively underbills customers for work performed on the date of that invoice. Underbilling caused by slow construction billing practices should only have a negative impact on cash flow that’s temporary. However, certain types of construction underbilling situations turn into unrecoverable losses. • Poorly estimating project costs can lead to underbilling a job, too. For example, you might think you only need a crew of 4 laborers and budget accordingly. In reality, if it takes 6 workers to get the job done on time, there may not be room in the budget for those additional workers. If you eat the cost and only bill for 4 laborers, you’ve just underbilled. • Unrecognized overbilling at the beginning of a project can lead to underbilling towards the end of the job, too. Some businesses intentionally front load their invoices - which we do NOT recommend - and others may do it accidentally. Either way, if too much of the budget is allocated to the beginning of the project, a contractor may find themselves underbilling at the end in order to stay “on budget”. • Weak project management control is another bad practice that leads to construction underbilling. This term refers to costs for non-billable work. An example of this is using materials from existing inventory but not including those materials in the invoices. Or, pulling labor off of one project and putting it on another without considering additional labor cost. It might not result in direct underbilling, but the net effect is similar. Not all of the labor or materials put into the job are being billed. • Finally, we have unapproved construction change orders. This isn’t really “underbilling”, per se, but it can have a similar effect. A construction change order is work that is added to or deleted from the original construction contract. Examples could be a change in the materials used, adding more electrical lines, or changing floor plans to accommodate unexpected project needs. If a change order is not approved but the contractor still spends the money and performs the work, the customer might refuse to pay for that work. The result may effectively be a permanent, unrecoverable underbilling. By performing under unapproved change orders, you may be doing “extra work” which you won't be paid for. In any event, the best thing to do here is to get your construction change orders approved early and often. • Underbilling in construction is almost never a good thing and at the highest level, indicates that a construction company lacks financial control and accounting effectiveness. Also, it usually isn’t good for the project cash flow. When a contractor is underbilling customers, they are spending money on project costs, but are not getting the same amount of money back from their customers. This leads to a negative cash flow for as long as the construction underbilling lasts. • Over 500,000 contractors and suppliers connect on Levelset’s cloud-based platform to make payment processes stress-free. Users easily exchange payment documents like Lien Waivers, Pay Applications, and Preliminary Notices, they see a complete picture of who is on their job, and are empowered with the resources and knowledge they need to be confident in payment. The results are faster payments and fewer surprises. • Levelset is venture-backed by S3 Ventures, Altos Ventures, and Brick Mortar Ventures. Headquartered in New Orleans with offices in Austin and Cairo, Egypt, Levelset employs more than 150 people. For more information about Levelset, visit http://levelset.com or call 866-720-5436.

#############################

New on site