By: Dawn Killough
As a construction accounts payable coordinator and contract administrator for a General Contractor, I’ve seen lots of invoices not get paid in my time. I’ve also received lots of calls and emails from subcontractors wondering where their check is. So I compiled some of the 10 most common reasons why the GC isn’t paying. (Five are the fault of the subcontractor, and five are on the GC.)
Below each ones, I included some possible solutions specific to that scenario. You probably also want to learn steps you can take to speed up payment on every construction project before, during, and after a project.
Subcontractor issues
Sometimes, an invoice doesn’t get paid because of a problem that the subcontractor could have solved. Here are 5 things subs do that delays their payments.
1. Missing documents
At the GCs I’ve worked for, subs were required to sign their construction contract and send in insurance certificates and a W-9 form before we would send the first payment on a project. It was my job to confirm that all of these documents had been completed, and if they hadn’t, to remind the sub to turn them in.
It’s a good idea to sign and return the contract as soon as possible, unless there is a dispute. Holding up this document could significantly slow the progress of the project, and your payments. If there is an issue that needs to be fixed on the contract, meet with the GC as soon as possible and get things worked out.
What you can do
I would suggest that you develop a checklist that includes all the documents that need to be returned when a contract comes through. These may include insurance certificates, W9 form, bonds (if necessary), and any other documents the GC is requiring. By having a checklist, you’ll ensure that the documents get sent before your first payment request.
2. Invoice was submitted late (or not at all)
Unfortunately, this one happens quite a bit. Most GCs have a cut-off date that you need to get your invoices in by (usually the 20th or 25th of the month). They do this because they have a certain date by which they need to invoice the property owner. If they have to wait until the 5th or 10th to get all the invoices in, then everybody has to wait that much longer to get paid.
The other mistake I see a lot is subs not sending an invoice at all. They think they sent it, but we never received it. (Trust me, I’m the one that keeps track of them.)
What you can do
Read your construction contract, and the documents that come with it, to see when the cut-off date is for each GC. If you don’t see it spelled out, contact the GC or their accounts payable (AP) department. If you have extenuating circumstances that prohibit you from meeting that deadline, talk to the GC about it. They may have some flexibility to accept a late invoice.
If you are emailing your invoices, either send them with a read receipt, or ask for a confirmation that they were received. Also, verify that you are sending it to the correct email address. For mailed invoices, make sure you have the correct address and be sure to send them out at least a week ahead of time so you make the deadline.
3. Missing attachments
Some contracts require additional documents with each payment application. These may be certified payroll reports, sworn statements, or conditional or unconditional lien waivers.
If you don’t include these documents with your invoice or pay app, then the GC has to track them down before submitting their own draw request to the owner. This costs everyone time, and delays payment.
What you can do
One way to address this is to create a billing checklist for each project, listing the added documents that need to be included with each invoice. The contract documents should spell out what these are, and sample forms may be provided. Ask the GC if you have any concerns or questions.
4. Billed for unapproved change orders
Change orders occur when there is a change to the scope of work on a project. They can happen at any time. Most contracts stipulate that change orders won’t be paid until they are approved.
The reality in the field is that many times the work needs to be done now, and no one stops for approval. Costs for the change are incurred, and subs want to bill for those costs. Of course, that makes sense.
What you can do
My suggestion here is that subs submit change order pricing for approval as soon as you are able, especially if it’s near the cut-off date for billing. Ask the project manager for approval so you can get the costs in your invoice. They may be willing to work with you if they have some flexibility in their budget.
Another idea, especially at the end of a project, is to bill the unapproved change orders in a separate invoice from the main contract. This way, if the change order billing is rejected because the change orders aren’t approved, only that payment will be delayed — for now.
If you lump all the unapproved change orders and the contract billing together, the whole amount could be held up waiting for approval.
5. Project is overbilled
If the GC isn’t paying your invoice, make sure your invoice isn’t overbilled. Overbilling is submitting an invoice for more of the contract than is complete. For example, if you are 50% done with your work, and you bill for 75% of the contract, that is overbilling. Some subs do it, especially early in a project, to help their cash flow position.
What you can do
If you are having cash flow problems and feel like you need to overbill a project, talk to the GC before you send the invoice. Surprising them with a “75% complete” invoice out of the blue — when you’re only 50% done — will probably mean your invoice will be rejected and you won’t get anything.
But if you talk to them ahead of time, you may be able to work something out. Often the GC’s payment application is scrutinized carefully, so they have to be sure that they are only billing for the work that is complete.
Cash flow issues could be a sign of a bigger problem in your business. Implement steps to collect faster on your invoices and improve your cash flow, so you don’t need to resort to overbilling to make up for a shortfall.
General contractor issues
A payment delay isn’t always caused by something you did (or didn’t do) as a subcontractor. Sometimes the GC isn’t paying because of an event on their side of things. Picking up where we left off above, here are 5 of the most common.
6. Waiting on documents from other subs
Often, the GC has to collect documents from their subcontractors and include them in their own pay application to the owner. These documents include sworn statements, copies of invoices, and lien waivers.
Some property owners or lenders won’t begin processing a draw until all the documents are turned in from all of the sub-tier parties. As a result, the GC has to wait until every single subcontractor and supplier gets their paperwork in before their own draw can be submitted.
What you can do
Unfortunately, you don’t have a lot of control over the actions of another subcontractor. If everyone included the required documents with their pay apps, and returned lien waivers promptly upon receipt, then the GC could submit their draw in a timely fashion and get everyone paid sooner.
Of course, if you are the sub holding up a GC’s draw, submit your paperwork as soon as it is requested.
7. The project owner is slow paying
Some customers take up to 45 days to process a payment, even when there isn’t a dispute or back-up documents that need to be turned in. Large companies and institutions, especially those that don’t do construction projects regularly, are notorious for slow payments.
What you can do
The best way to avoid this scenario is to be choosier about your projects, and avoid taking a job when you have concerns about the people in charge.
That might sound easier said than done. But just like you should be prequalifying the GC to check their payment history, it’s important to look closely at the property owner’s reputation before you get involved.
If the property owner is slowing down payments, take a look at the Prompt Payment laws in the project’s state. These laws set deadlines for payments on construction projects. For example, the Prompt Payment Act in California requires the property owner to pay the GC’s invoice within 30 days of receipt. In some states, the deadline is much shorter.
When the property owner is violating prompt payment requirements, you are within your right to file a prompt payment claim.
8. Financing problems
It can take a while for project financing to be put in place and get funded. If the project started before the loan was closed, it can take up to two months for the loan to be finalized.
What you can do
Subs aren’t really in control here, but you can ask the GC what the financing situation is before you start work, so you know when to expect payment on your first draw. Ask them to provide financial documents that demonstrate the project’s funding.
GCs don’t always ask their customers the hard questions, like about financing, so they honestly may not be aware of the customer’s financial position. By asking this question, you can help them find out for themselves and everyone on the project team.
9. GC cash flow issues
Most GCs won’t talk about this one, but they sometimes have cash flow problems themselves. They are often called on to “fund” projects by laying out money before they’ve been paid. That can hurt their financial position if they have to do it too often. GCs won’t tell you this is the reason they can’t pay you, but it does happen.
What you can do
Again, this comes back to prequalifying the GC and property owner before you take on a job. Look up the GC’s Payment Profile. If they have payment disputes pending on several projects at once, it could be a sign that their cash reserves are stretched thin.
10. Remote work due to COVID-19
Finally, the GC may be working with limited staff or their staff may be working from home due to the Coronavirus. This may limit their ability to cut and sign checks and process payments in a timely fashion.
What you can do
You can help by offering alternative ways to pay your invoice, such as by credit card or ACH transfer. Sometimes a project manager can make a payment that way much easier than getting the office involved.
Things to remember when the GC isn’t paying
Keep in mind that the people responsible for your payments are human, too. We all make mistakes. Sometimes, speeding up your check is as simple as sending an invoice reminder — send an email or make a phone call to jog the payment loose.
While I can’t speak from my own experience, I am aware that some GCs delay payments intentionally, make up back charges, or hold onto retainage and hope the sub just gives up on it. Remember that every state has mechanics lien laws for this reason.
Subcontractors have the right to file a lien if they aren’t paid on time. From the GC’s side of things, I obviously want to do whatever we can to avoid a lien claim on the project. But if I were in a subcontractor’s shoes, I would want to do everything I could to ensure I had mechanics lien protection on every job.
