This guide explores AIA invoicing, a standardized method commonly used in commercial construction projects across the United States.
What is AIA Invoicing?
AIA invoicing is based on the AIA Document G702 Application for Payment and its companion G703 Continuation Sheet. These forms provide a structured approach to invoicing for construction projects. While originally introduced by the American Institute of Architects (AIA), most construction professionals accept non-branded versions as long as they follow the same layout.
Important Note: AIA invoicing is ideal for fixed-price contracts and not suited for time and materials projects. Some alternative terms for AIA invoicing include pay application or pay app.
Understanding the AIA Invoice Structure
AIA applications for payment consist of two key parts:
G702 Application for Payment: This cover page summarizes overall project billing progress and acts as a contractor’s certification for the requested payment based on completed work.
G703 Continuation Sheets: These pages (often multiple) provide a detailed breakdown of the project by line item, showcasing billing progress for each. In many cases, the continuation sheet is further divided into separate tables for original contract line items and any change orders issued.
What is an Invoice?
An invoice acts as a request for payment for materials supplied or work completed. In the construction industry, invoices can be exchanged between various parties:
- A contractor sending an invoice to their client
- A contractor receiving an invoice from a vendor or subcontractor
Within Knowify’s platform, we differentiate between the two using specific terms:
- Invoice: Refers to a request for payment sent to the client by the contractor.
- Bill: Refers to a request for payment from a vendor or subcontractor to the contractor.
Understanding the Invoicing Process
Construction contracts typically specify invoicing triggers, such as the end of a month or upon reaching specific project milestones. Based on these triggers, the contractor prepares an invoice that requests payment from the client. The invoice details include:
- The amount due
- Payment terms (i.e., the timeframe for the client to settle the invoice)
- Remittance instructions (how the client should make the payment)
Types of Invoicing in Construction
There are two main invoicing methods used in construction:
Progress Invoicing: This method involves sending invoices at regular intervals throughout the project, typically based on a percentage of work completed.
AIA Invoicing: This standardized method utilizes the AIA Document G702 Application for Payment and its companion G703 Continuation Sheet. These forms provide a structured approach to invoicing for construction projects, particularly beneficial for fixed-price contracts.
What is Invoice Payment in Construction?
An invoice payment in construction represents the settlement of an invoice issued by a contractor to a client, or vice versa. Ideally, the invoice payment amount exactly matches the amount due on the invoice. However, there can be situations where a client disputes the invoice and pays a different amount. In such cases, it’s crucial for contractors to promptly address these disputes to avoid delays in receiving full payment.
Understanding the Invoice Payment Process
The typical invoice payment process in construction follows these steps:
Contractor Issues Invoice: The contractor sends an invoice to the client, detailing the amount due for materials or services provided. Often, in AIA invoicing, this invoice will be an AIA Document G702 Application for Payment.
Client Reviews Invoice: The client meticulously examines the invoice to ensure it aligns with the contract terms and reflects the work completed or materials delivered.
Client Makes Payment: If the client finds the invoice accurate, they will make a full payment according to the specified terms (e.g., net 30 days).
Contractor Receives Payment: The contractor receives the invoice payment and reconciles it with the corresponding outstanding invoice.
Invoice Marked Paid: Once the payment is verified, the invoice is marked as paid and closed within the contractor’s accounting system.
AIA Invoicing and Streamlined Payment
AIA invoicing offers a standardized approach that can expedite the invoice payment process. The clear structure of the AIA documents (G702 and G703) minimizes the risk of errors or disputes, promoting timely and accurate invoice payments for contractors.
Progress Invoicing vs. AIA Invoicing in Construction
Progress invoicing is a widely used method for billing in construction projects. It involves sending invoices at regular intervals, typically based on a percentage of work completion. While commonly used, progress invoicing is not the same as AIA invoicing.
Here’s a breakdown of the key differences:
Progress Invoicing: This approach is ideal for fixed-price contracts and involves issuing invoices at predetermined points throughout the project, often based on a pre-defined schedule of values (SOV) that outlines the percentage of work completed for each billing period. The invoice amount reflects the corresponding percentage of the total contract value.
AIA Invoicing: This standardized method utilizes the AIA Document G702 Application for Payment and its companion G703 Continuation Sheet. These forms provide a structured framework for invoicing, focusing on detailing the value of work completed during a specific billing period, rather than a predetermined percentage of the entire project. AIA invoicing is also suitable for fixed-price contracts.
Choosing Between Progress Invoicing and AIA Invoicing
The selection between progress invoicing and AIA invoicing depends on various factors including project complexity, contract terms, and cash flow requirements. While both methods are suited for fixed-price contracts, AIA invoicing offers a more granular approach, allowing for greater flexibility in tracking and billing for completed work units.
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