ARE BILLING ERRORS COSTING YOU TIME AND MONEY?

How much are billing errors costing you? Do you have a system in place that matches bills from your suppliers to their original estimate and do you have change orders in place that account for differences between the two?

As with any other function of your business, your accounts payable department should have a systematic process that is followed throughout the estimating and billing cycles. With the technology available today, many home building software packages will allow you to automate this process. Whether you use an integrated software package or a paper based approach having a systematic process in place will allow you to achieve greater cost control and make more money on every job.

For each Job set up a series of three folders. The first folder is for the 'Estimates/Quotes', the second for the 'Received Invoices' as they are billed, and the third for the 'Paid Invoices' that have been approved and paid. (As a side note, it is important to break this down by job in order to create a database for future estimates: compare your estimates to the final billing at the end of the job and divide by the size of the job and you will quickly create a database for future estimates.) A separate series of three folders can be created for your overhead bills.

The first step in eliminating billing errors is to require written estimates or quotes from your tradesmen and suppliers. Make it a requirement for anyone you do business with to provide this written documentation before they start work. During Pre-Construction Planning, the Estimator will file quotes in the 'Estimates/Quotes' Folder.

Once the work is complete and an Invoice is received, the Purchasing Manager will stamp and code the invoices and file them in the 'Received Invoices' Folder. At this time the Purchasing Manager should also locate the corresponding Estimate from the 'Estimates/Quotes' Folder. As your payment date approaches (a common practice is every two weeks), the head of Construction Operations will review the invoices and initial off on an amount to pay based on the information on the original estimate and the final invoice.

By setting up this system and following the process for each job, you will be able to quickly audit your Invoices and easily red flag those which do not jive with the original estimate. If an Invoice does not match up to a written estimate, you need to identify why. If there is an overage, there should be a Change Order that is already in place identifying that the Project Manager or Purchasing Manager was aware the work was going over budget ahead of time.

A simple way to track the invoices as they come into the office is to create a stamp that can be used on each bill. The stamp should have the Job Name, the Date Received, the Account Description (and corresponding NAHB Chart of Accounts #), the Budgeted Amount, the Approved Payment Amount, and a block to sign off on Payment Approval. Here is an example:

By requiring written quotes and estimates, tracking invoices by job, coding the invoices properly, and comparing the invoices to your original quotes, you will be able to catch billing errors. Take the time to overhaul your invoice payment system using the steps outlined above and the cost savings over the course of a job could add up to thousands of dollars. Documented processes will bring you the systems that you need to track, code and pay your invoices properly and accurately.

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