As a contractor, managing payments can be a daunting task, with most general contractors spending a significant amount of time chasing payments. Construction payment applications are essential in the construction industry but are often manual, unorganized, and time-consuming.
In this article, we’ll discuss everything you need to know about payment applications and what you can do to streamline the process.
What is a Payment Application?
A payment application, also called a pay application or simply a pay app, is a set of documents that contractors submit to request payment for work completed on a construction project.
Pay applications are governed by the construction contract, which typically includes details on deadlines, application timing, and required documents. As a result, the pay app process can vary with each job.
Invoice vs. Pay App
Unlike other industries where a simple invoice may suffice, construction projects are often large and complex and require additional proof of work completed to demonstrate to the client that payment is due.
Pay apps provide details on labor, materials, change orders, and other project specifics, essentially backing up the payment request with supporting documents and images. An invoice is often just one of the documents included in a payment application package.
When are Pay Applications Used?
Pay applications are typically used on projects with progress billing, where payments are spread out throughout the duration of the job at specific intervals or “pay periods.” Pay applications are usually submitted once a month, and a new pay app builds on the one before it.
What’s Included in a Pay App?
A construction pay app involves multiple parties within an organization to assemble a comprehensive package. These packages usually include:
- Payment application form.
- Schedule of values (SOV) or AIA continuation sheet.
- Conditional and unconditional lien waivers.
- Change orders.
- Invoices from suppliers or vendors.
- Receipts for paid materials.
- Visual documentation (photos, drawings, diagrams, etc.).
- Compliance documents such as diversity hire or prevailing wage reports.
What’s Included in a Pay Application Form?
Unfortunately, there is no standard payment application form across the construction industry, contributing to the process’s time-consuming and frustrating nature. Contractors may have to manage different pay app requirements for multiple jobs.
However, a typical pay application form includes the following information:
- Original contract value.
- Value of all approved change orders.
- Current contract value.
- Value of the work completed and materials stored to date.
- Total retainage to date.
- Total amount received to date.
- Amount currently due.
- Balance to finish.
Common Types of Pay Application Forms
The American Institute of Architects (AIA) and ConsensusDocs are two organizations that produce widely used pay application forms.
Some of the most common forms include:
- AIA G702 Application and Certificate for Payment.
- ConsensusDocs Lump Sum and Guaranteed Maximum Price (GMP) applications for GCs.
- ConsensusDocs 710 Application for Payment for Subcontractors.
These two options usually have all the information you need in your pay application form. If you’re not using a standardized form, make sure your pay app form includes all the information required in your contract.
Best Practices for Payment Applications
To ensure that your payment application is approved and paid on time, it’s essential to be as thorough and detailed as possible. To avoid incomplete or incorrect payment applications, always make sure to:
- Read the contract carefully and follow its requirements.
- Provide ample evidence to support the payment request.
Missing a deadline or failing to include a required document could result in your application being rejected, potentially delaying your payment. GCs also face challenges in collecting, tracking, and organizing payment applications from subcontractors, making follow-ups often necessary. Powered by its AI technology, CEMENTA’s Billing Platform makes creating and managing your and your subcontractor’s payment applications very easy while helping you avoid errors and delays.
Streamlining the Payment Application Process
To simplify the construction payment application process, consider the following tips:
- Familiarize yourself with common pay app forms and any additional documents required.
- Provide ample evidence and documentation, such as schedules of values, lien waivers, change orders, and visual proof of work.
- Always read the contract carefully to understand your responsibilities when submitting a pay app.
- Develop a system to manage multiple pay app requirements for different jobs, keeping track of deadlines and required documents.
- Keep all project-related paperwork organized and easily accessible to avoid delays in submitting pay apps.
- Maintain clear communication with the GC or owner to address any issues or questions during the pay app process.
- Use software solutions such as CEMENTA to create and manage your payment applications.
CEMENTA Billing Platform allows you to do all of these and more. CEMENTA enables you to automate and standardize the payment management process between Project Owners, GCs, and subcontractors. Powered by our AI technology, you can easily create your pay app forms in minutes, track all the required documents, keep track of deadlines with alerts and reminders, maintain all your records organized in one place, collaborate with your subs and clients anywhere, anytime, and to top it all up you have instant access to financing via factoring.
The Bottom Line
The payment application process can be complex and time-consuming. Still, it is a necessary part of the construction payment process. Understanding its intricacies and streamlining the process can help you minimize administrative tasks and focus on what you do best, BUILD. A complete and accurate payment application is a powerful tool that you can use to get paid faster. Remember that in construction, you get paid for the work you document, not just the work you complete.
If you need help, don’t hesitate to seek assistance from experienced professionals. CEMENTA PRO Services provides you with all the support you need from seasoned industry experts, plus access to all the benefits of the CEMENTA Billing Platform.