If you think that job costing is all it takes to have a good construction accounting system – think again!
You need a firm handle on your costs and QuickBooks when properly setup and used does a very good job, however, you also need to be able to control those costs.
In almost every other industry, the Accounts Payable function is strictly a clerical function, found only in the accounting department.
Most construction managers know that subcontract and purchase order control can only be achieved with a good accounts payable system in place. As much as 75% of your Accounting Department’s time is spent on the Accounts Payable process. Receiving and paying invoices is a constant, on-going process. Therefore, it had better be good.
The problems of having to handle so many accounts with so many different people over extended periods of time can all be solved by how well you utilize the functionality found in the various pieces of the QuickBooks Vendor Center.
- Using the “Enter Bills” in conjunction with the “Pay Bills” functions reduces costs by preventing double payments.
- By setting up and using “Terms” you can improve profit by watching for available discounts.
- By using the Purchase Order function for tracking subcontracts and materials purchases you can avoid over payments.
- You can even setup and utilize a system to track the expiration dates of subcontractor Workers Comp and General Liability policies.
- It can even help you when you talk to your bonding company.
When you utilize the Enter Bills function and setup up Terms, QuickBooks then recognizes that you do not pay all your bills the same way.
- There are vendor invoices that need to be paid by some due date in order to take advantage of discounts.
- Other bills are paid when you are paid for a particular job.
Naturally tracking the discounts and retainages for each can be a time consuming job.
Whom do you owe money to? How much do you owe them? When do you have to pay them? These basic questions have to be answered every day. The QuickBooks A/P Aging Detail and Unpaid Bills Detail Reports are ready with the answers. Since the Enter Bills form asks for a due date, you can input any date, and use it for cash forecasting, or for a final checklist before you run checks.
Features and Functions of a good Accounts Payable system when using QuickBooks:
- Using the “Enter Bills” function allows for immediate posting of invoices
- Using the “Pay Bills” function allows you to take advantage of discounts and provides immediate posting of payments.
- Maintains vendor and invoice numbers to guard against double payments.
- Automatically calculates discounts.
- Track Retainage withheld from subcontractor payments.
- Track Workers Compensation and General Liability Insurance expiration dates for subcontractors.
- Print Joint Checks, 1099’s, and Lien Releases.
- Set up your own “cost” codes to track expenses and/or cost of goods sold expenditures.
- Assign vendor costs to specific cost codes and jobs.
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Request our FREE eBook – “QuickBooks Tips & Techniques – Setting Up & Tracking Subcontractors Worker’s Comp Insurance”.This eBook will provide you with complete instructions for setting up and maintaining a system for tracking expiration dates of Subcontractors Worker’s Comp AND General Liability Insurance. |
ASA (American Subcontractors Association) of Arizona Shows Leadership in Securing Prompt Pay of Retainage & Final Payment.
(from Contractor Power Newsletter)
ALEXANDRIA, Va. — A new law (S.B. 1375) signed by Arizona Gov. Jan Brewer (R) on May 11, 2010, adds requirements for timely payment of retainage and final payments to the state’s prompt payment statute for construction. The law, supported by the American Subcontractors Association of Arizona and its allies representing a broad range of the state’s construction industry, establishes a payment cycle according to which non-residential project owners, prime contractors, and subcontractors normally will have to pay retainage and final payments for properly completed construction services and materials, or else pay a penalty of 1.5-percent interest per month.
The governor of Arizona has signed into law the most significant construction legislation improving subcontractor rights within the last 10 years, said ASA of Arizona President Jeff Banker, Banker Insulation Inc., Chandler, Ariz. ASA of Arizona was proud to have a leading role in helping shape the new law and the future of construction in Arizona.
The law, which applies to projects for which contracts, plans or specifications are distributed on or after Jan. 1, 2011, will require prime contractors to submit timely applications for payment according to the project’s billing cycle (normally 30 days). Unless stated otherwise in the construction plans, project owners will have to approve within 14 days, and pay within 7 days after that, proper invoices for retainage that subcontractors submit at substantial completion of their work. The law will also establish a 21-day cycle for project owners to pay prime contractors proper invoices for final payment. It will limit owners withholding of such payments to 150 percent of the reasonable costs to complete any work that is under dispute.
Prime contractors and subcontractors will have seven days from receipt of retainage and final payment to pay their subcontractors and material suppliers, except when reasons for withholding are detailed in a written notice. The law will entitle subcontractors to written notifications of retainage releases by owners once subcontractors request such notifications. It will specifically protect subcontractors from wrongful withholding for defective work or materials that are not their fault. Where subcontractors are not at fault, the law says, The Contractor shall nevertheless pay any subcontractor or material supplier … within 221 days after payment would otherwise have been made by the owner.
ASA of Arizona and its allies worked hard throughout this long legislative process to prevent damage to existing prompt payment rights and to enact these beneficial payment reforms, said ASA of Arizona Advocacy Chairman Richard Usher, Hill and Usher Insurance & Surety, Phoenix, Ariz. The volume of Arizona construction is down dramatically in all market segments, which makes protecting payment rights and getting paid promptly as important as ever to subcontractor prosperity and survival.
Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry and to serve as a steward for the community. ASA’s vision is to be the united voice dedicated to improving the business environment in the construction industry. The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, and integrity and membership diversity.
ASA Contact: David Mendes
(703) 684-3450, Ext. 1335
dmendes@asa-hq.com
Tracking retainage is a common function of percentage-of-completion contract billing using AIA Forms G-702 & G-703. To learn more about AIA Billing and how to complete forms G-702/G-703, click here.
Using QuickBooks in the construction industry can be a daunting task.
There is not a lot of construction specific help available for QuickBooks users and the accounting professionals who support them.
That’s one of the reasons that we’ve decided to start a “QuickBooks for Contractors” Group on LinkedIn – please feel free to join us – http://www.linkedin.com/e/vgh/3105723/
You can also follow Sunburst on:
Tracking costs throughout a construction project is possibly the most important aspect of completing a project. This may seem like a simple function, but in a construction project, different entities need different financial information, and being able to track finances in real time saves a lot of work (and costs) later on.
Let’s look at some of the costs and how accounting software fills the need.
Construction accounting software makes it easier to keep track of direct material purchases. Direct materials consist of basic building supplies like drywall, wire, pipes, and wood. Essentially, direct materials are everything purchased for a project. Sometimes these materials are purchased tax-free or with a builder’s discount. These items are generally recorded separate of labor costs to ensure accurate profit and loss statements.
The cost of labor has to be tracked apart from direct material costs. Labor costs can include payroll, contractor fees and sub-contractor fees. For employees, tax withholdings need to be kept track of as well as health insurance, payroll deductions, retirement withholdings, etc. Subcontractors are paid in a lump sum with no taxes withheld. So, these need to be kept track of separately. Accounting software has built in features that allow a bookkeeper or business owner to keep track of all of these things. It may even allow you to export information to a payroll service.
Subcontractors and contract workers are a little different as companies are not required to track or even take withholding, but accounting software should also have a feature to allow generation of 1099 forms for work without withholding. As with direct labor or any ledger, this software allows easy review and retrieval of information when the project is finished and again when taxes must be filed.
Construction businesses must keep track of services in a separate category. This need is reflected in most construction management software. Services differ from direct labor because workers performing the work are actually in the employ of another business. For example, workers sent to repair rented equipment or refuel equipment might fall under service expenses. These expenses need to be recorded on their own as a direct expense.
Something that makes subcontractors even more difficult to track is that the bill often includes labor and supplies. This makes it difficult to see exactly where the money is going and look for ways to cut costs. With accounting software, a manager can see that X was paid to a subcontractor who poured the foundation. But it also breaks it down into supplies and labor, so that a manager can discern if there is a better price on materials or if the labor cost was inflated.
All of the above mentioned things can be done using a standard (not industry specific) accounting software like QuickBooks, however, standard software is essentially a blank sheet that can be customized to meet the needs of the business. With a construction-specific accounting software program, the legers and forms are pre-defined – often leaving little room for customization.
Depending on the extent of the construction projects that a contractor is involved in, it still may be substantial work to customize QuickBooks to meet their needs, but then we do have to remember that contractors are used to “building things”.
