Understanding Pay Apps in Construction
Managing payments in the construction industry can be complex and time-consuming. However, this process has become more streamlined and efficient with the rising adoption of construction payment applications. In this blog, we will dive into what payment applications are, how they work, and the differences in how they are utilized between general contractors and subcontractors. We’ll also explore the benefits of using pay apps.
What is a Payment Application?
A payment application, often referred to as a pay app, is a document submitted by contractors to request payment for work completed on a construction project. This document includes details such as the amount of work completed, materials used, and any other costs incurred during the project period. Payment applications are essential for ensuring that all parties are compensated fairly and on time.
How Do Payment Applications Work?
Invoicing in construction isn’t as simple as sending a payment request to a contractor. Payment applications, also referred to as applications for payment and pay apps, provide comprehensive details on labor, materials, change orders, and other project specifics. Essentially, it’s a request for payment with supporting documents and images. Common supporting documents in applications for payment in construction include:
- Payment Application Form (AIA Document G702/G703 pay app forms)
- Schedule of Values
- Change Orders
- Lien Waivers
- Project Status & Schedules
- Additional Invoices & Receipts
- Images of Completed Work
Despite the complexity of completing payment applications, fewer than 1 in 3 general contractors use payment application software to organize, send, and track payments and paperwork, creating a manual process and headache for many accounting teams.
How a General Contractor Uses Payment Applications vs. a Subcontractor
Payment applications are equally valuable to both general contractors and subcontractors. Even though the benefits may differ slightly based on the user, the outcome of keeping a project on time, documenting details properly, and ensuring on-time payments are the mutual goals between the two parties.
General Contractors:
- Track and review payment applications from multiple subcontractors
- Ensure compliance documents and lien waivers are submitted
- Manage and approve change orders
- Oversee the overall project billing and payment distribution
Subcontractors:
- Submit detailed payment applications to general contractors
- Provide supporting documents such as lien waivers and invoices
- Track the approval status of their submitted pay apps
- Communicate with general contractors regarding any discrepancies or issues
Who Uses Payment Applications?
General contractors and subcontractors everywhere benefit from the functionality of pay apps. Vertical construction contractors who specialize in commercial or multi-family projects often choose pay apps like GCPay as their preferred solution for managing payment applications in construction.
Whether you’re the CFO, controller, or financial analyst, you’ll use pay applications to:
- Track pay apps
- Review monthly statements
- Monitor the progress of your projects
- Approve expenses
- Oversee financial operations
- Ensure project billings are issued and payments are collected and distributed
- Confirm compliance is met and waivers are collected
Key Benefits of Construction Payment Applications
Construction companies who have already implemented pay apps tell us the primary benefits they see are increased efficiency, more control (and less risk), and transparency with subs.
- Optimizes accounting tasks throughout the entire construction project lifecycle
- Connects information and systems, bringing together field teams with administration and accounting teams
- Provides insight into the financial health of individual construction projects or the entirety of your project portfolio
A robust payment application provides unique functional advantages in the areas of billing, payments, lien waivers, and compliance tracking. More specifically, users need technology that can embed and enforce requirements throughout the billing process. Key features should include functionality to manage and automate key areas of the payment application process:
- Batch transactions
- Online notary services
- Conditional & unconditional lien waivers
- Owner billing
- Secure exchange of lien waivers
- Audit trails
- Paperless payments & ePayment transfers (optional)
- Reports on key metrics
- ERP Integrations
Pay App ERP Integration
It’s incredibly important to integrate your payment applications with your ERP system or construction accounting software. As a single source of truth for your contract and job data, it’s vital to work from your ERP and pull information into your pay app system.
Common ERPs in construction include Sage, Viewpoint Vista, CMiC, and Acumatica, as well as QuickBooks and other platforms. It is still very possible and often helpful to use a pay app even if it is unintegrated. However, robust integrations mean less data entry, data transparency, accurate tracking, mobility, and improved payment process management.
How do General Contractors Use GCPay for Pay Application Management?
GCPay is the construction industry’s preferred solution for managing payment applications. Since 2003, general contractors have turned to GCPay as a paperless alternative for construction billing; solving for the nuances of approval routing, lien waivers, ERP integrations, tier contractor management, electronic payments, and compliance tracking.
Deep Dive Into Some of GCPay’s Payment Application Functionality:
- Lien Waivers: Generate custom lien waiver templates. GCPay weaves lien waiver management into the billing process itself. This is particularly helpful for exchanging conditional waivers, as GCPay users can require waivers at payment application submission to meet their state’s lien wavier requirements. GCPay can generate and collect the unconditional or final waiver at the time of pay app submission, then hold the waiver in trust until payment has been received. This guarantees timely receipt of the waiver.
- Online Notary: Upload documents, connect to the appropriate online notary agent, e-sign those documents, and receive the fully notarized documents back to email to your customers.
- Owner Billing: Map subcontracted costs to their prime contract and automatically populate billing based on subcontracted costs.
- Reporting & Dashboards: See outstanding pay apps, schedules of value, lien waivers, and compliance documents in the dashboard and reports tab. You can export any reports into Excel to filter any way you need.
ERP Integration:
GCPay currently integrates with Sage, CMiC, Acumatica, Procore and Viewpoint Vista.
Ready to explore if GCPay is the right payment application for your business? Book a free demo here.
