If you’re in an accounting role at a commercial construction company, then you may view payment applications as a necessary evil. How on earth did the industry manage to take a simple construction billing process like invoicing and turn it into such a headache?
Instead of sending off an invoice every month when it's time to get paid, you have to prepare an entire packet of paperwork for every single project. Every time you think you’ve got all the documentation together, something changes. No one tells you until it’s too late. But if you submit your payment applications (or requisitions for any New Yorkers out there) with any missing or inaccurate information, then it’s a fire drill to fix everything and resubmit before the window closes. Payment is delayed (or in some instances, payment doesn’t happen at all), and you’re stressed to the max.
This guide aims to simplify and improve the payment application process so you can save time, improve accuracy, and get paid faster. Here’s what it covers:
- Documents to Include in Construction Payment Applications
- When to Submit Payment Applications
- Payment Application Workflows for Subcontractors
- Payment Application Workflows for General Contractors
- Tracking and Managing Your Payment Applications
- Tips to Simplify Payment Applications
Documents to Include in Construction Payment Applications
Some contractors think of payment applications as the form itself. This term actually refers to a collection of documents that prove what work was done, which materials were used, and what payment is due.
While the specific documents you need to provide will vary per contract, payment applications generally include the following:
- Application for Payment Form
- Continuation Sheet (includes Schedule of Values and Change Orders)
- Lien Waivers
Depending on the situation, you may also include backup documents like:
- Materials Receipts and Invoices
- Payroll Wage Reports
Let’s look at the purpose of each document.
1. Application for Payment Form
Each payment application starts with an Application for Payment form. Many GCs and owners have their own custom versions of this form, but some standard forms are used across the industry.
- AIA G702 Application and Certificate for Payment, created by the American Institute for Architects. If you don’t currently subscribe to AIA Contract Documents, there’s a per-usage charge for this form.
- ConsensusDocs 710, one of more than 100 documents in the ConsensusDocs library developed for the architecture, engineering, and construction industries.
Before you start the Application for Payment form, have this info handy:
- name of the project
- name of the property owner/contractor/architect
- payment application number
- dates covered by the pay app
- original contract amount
- any change order details
- total value of work completed to date
- total amount of prior payments
- current amount due
2. Continuation Sheet
The second form you’ll want to use is a continuation sheet. The most common is the AIA G703. This provides supplemental information that makes it easier for GCs and owners to review the payment application quickly. It includes details like:
- original Schedule of Values (SOV)
- work completed to date
- percentage of work completed
- details of agreed-upon change orders
- materials and supplies purchased
- amount of payments already made
- retention details (what percentage is being withheld; is it per project, per pay application, per line item, etc.)
PRO TIP: A continuation sheet isn’t always required. But if you’re not using a continuation sheet, you will have to include additional documentation, like the Schedule of Values (SOV) and Change Orders.
3. Lien Waivers
Lien waivers are another essential piece of your payment application. These legal documents waive your right to place a lien or mechanic’s lien on the property for the amount that you’re billing for. Most GCs require lien waivers as part of a payment application to protect themselves from the risk of a lien being filed once they make a payment.
The types of lien waivers you need depend on the circumstances.
- When submitting a pay app for a progress payment, you’ll typically include a conditional progress lien waiver. Then, when you receive the progress payment, you’ll submit an unconditional progress lien waiver.
- When submitting a pay app for final payment, you’ll include a conditional final lien waiver. Then, when you receive the final payment, you’ll submit an unconditional final lien waiver.
- You may also need to provide lower-tier lien waivers for your vendors, sub-tier contractors, and materials suppliers. This will vary depending on the GC or owner’s requirements.
If you don’t submit the correct lien waivers (or they’re not properly completed) with your payment application, your payment will be delayed at least 30 days and could be delayed for multiple pay cycles.
4. Materials Receipts and Invoices
Tracking your expenses is an important part of billing for construction projects. If you’re billing for materials, your payment application should prove how much you’ve spent.
Here are some helpful documents to submit:
- Material receipts
- Delivery confirmations
- Bonding or insurance documents for the warehouse where they are being stored
- Photos of the materials in storage
5. Payroll and Prevailing Wage Reports
GCs may request payroll documents to prove your labor expenses. Some GCs only ask for this annually while others will want it with every pay application, so be sure to check the requirements for each project.
If it’s a government contract, you’ll also need to include a prevailing wage report proving that you’ve paid the state’s minimum prevailing wage to workers. This amount varies from state to state and is adjusted yearly.
Once you have all of the required and supporting documents on hand, you’ll compile them into a single document, which becomes your official payment application.
When to Submit Payment Apps
Payment applications are used to collect progress payments throughout the life of a project—typically those with longer durations and higher budgets. When to submit your payment applications depends on the project. GCs have their own requirements. This could be on a set date every month, when each project stage is completed, or when defined percentages of work are finished.
If you’re working on several projects, it can be hard to keep track of all these dates. But you must know the date payment applications are due for each project. Failure to submit your payment apps on time can cause significant payment delays.
Payment Application Workflow for Subcontractors
All the documentation lives in different systems, often in the possession of different people. So getting it together is no easy feat.
Here’s an idea of how the process goes. (If you’re in accounting, this should sound all too familiar.)
- Accounting calls and emails project managers reminding them to bill for this month.
- PMs determine what to bill for.
- Accounting checks GC requirements for each payment application.
- Accounting creates invoices.
- Accounting checks Change Orders with PMs and enters them on the invoices.
- Accounting hunts for backup information by calling PMs, checking shared drives, and searching emails and text messages.
- Accounting requests lien waivers from vendors and lower-tier subs.
- Accounting chases down lower-tier lien waivers and fixes them.
- Accounting fills out, prints, and signs compliance docs.
- Accounting generates the company’s own lien waivers, then prints and signs them, and scans them back to their computer.
- Accounting compiles the payment applications—including all of the signed and collected lien waivers—in Bluebeam or Adobe.
- Accounting submits the pay applications to GCs through their payment portal or another preferred communication system.
This doesn’t account for extra steps like getting payment applications notarized. Nor does it communicate how time-consuming it is to fill out the payment application forms and continuation sheets, not to mention track down receipts, invoices, and payroll reports. But it at least gives you an idea of how manual the process is.
It doesn’t have to be this way though. With Siteline’s construction billing software, you can put your payment applications on autopilot.
Here’s our automated pay apps process:
- Accounting creates invoices.
- Siteline sends reminders to PMs to edit invoices and add backups.
- Accounting requests vendor lien waivers and updates compliance docs—all through Siteline.
- Siteline automatically generates complete, accurate payment applications that accounting submits with a few clicks.
It doesn’t get much easier than that. If you need an easier, faster payment application process, then check out Siteline.
Payment Application Workflow for General Contractors
The payment application process isn’t easy for GCs either. After all, there can be dozens of subcontractors working on a single project and requesting progress payments at the same time.
Here’s a look at how it works from the GC’s side.
- Accept payment applications from all subs working on a project. These may come in through a payment portal, email, fax, or mail.
- Ensure project managers, field personnel, and supervisors review their subs' payment applications prior to the deadline and submit the approved applications for processing.
- Review every payment application to make sure it’s complete and accurate. They confirm that the work billed for was actually completed.
- Follow up with subs regarding any missing or inaccurate information.
- Once the GC has complete and accurate payment apps from all its subs, the accounting office combines them, adds a cover page, and includes its overhead and fee. Then they submit a single payment application to the client for payment.
- When the GC receives funding from the client (this could be 2 months later), they review each subcontractor’s account to make sure there aren't any red flags before paying them. Red flags include missing lien waivers, missing lower-tier lien waivers, expired compliance documents, pay app mistakes, etc.
- Once everything is cleared, the GC pays the subcontractor and collects the unconditional lien waiver for that payment app.
Tracking and Managing Payment Applications
On top of compiling and submitting payment applications, subcontractor accounting teams often have to prepare reports to share with executives and project managers during monthly and quarterly reviews.
Reports must communicate:
- The status of each payment application
- Whether all required billing details have been received
- Total billing that’s approved vs unapproved
- Status of payments
Gathering all this information typically takes a few hours, unless you’re using a tool like Siteline.
Siteline’s real-time dashboard makes it easy to see what’s going on across all of your payment applications. Executives no longer need to wait for meetings with accounting to understand the financial health of the business. And accounting saves a few hours each month.
Tips to Simplify Your Payment Applications Process
With the average construction payment cycle taking two to three months, mistakes on payment applications are costly, so you want to do everything possible to get your paperwork right the first time.
Here are a few tried-and-true tips to help this process go as smoothly as possible.
- Pay attention to specific contract requirements. The information in this guide is a general overview of the payment application process for most construction projects. But every contract will have its own unique requirements. Pay attention to the details.
- Know if your pay app needs to be notarized. There’s no law stating that payment applications must be notarized. Your contract may specify otherwise. Know when you need a notary and when you don’t.
- Adhere to deadlines. Every GC will have its own schedule for submitting pay applications. Make sure you adhere to these deadlines if you want to get paid on time.
- Be as detailed as possible. When it comes to getting paid, there’s no such thing as being too thorough. If your SOV includes a Change Order line and you also have a separate Change Order document, include them both. If you have a purchase order, a receipt, and a delivery confirmation for the same purchase, include them all.
- Provide evidence of your work. On top of all the documents, many GCs require contractors to submit evidence of their work. Be prepared to submit photos showing that the work you’re requesting payment for has been completed.
- Follow-up with GCs/owners. Once you’ve submitted your payment applications, follow up with payers to make sure they received everything. If anything is missing, take care of it right away.
- Save time by using software. Gathering, submitting, and monitoring the status of payment applications takes a long time. The right construction billing software can help you compile pay apps 6x faster.
To see how other trade contractors are saving hours of time and getting paid faster, request a demo of Siteline today.