Page 316 - TCDB combined Book

Chapter 6 MANAGEMENT 295

Accounts Receivable:

There are numerous accounting methods for preparing project invoicing and recording
their payments. The method suggested herein is based on a widely used and proven system.
Upon completion of the draft progress billing a formal invoice will be prepared. The invoice will
be based on a Contract "Schedule of Values" with current progress indicated by a percentage of
each division amounts. The total of all the items with noted progress percentage would be the
gross invoice amount. On projects with Statutory Holdback requirements you will deduct your
Holdback amount from the gross figure and any previous progress invoices payments, leaving a
balance that is the current amount due.

As progress billings continue there will be a point when the current amount due will be
reduced to the Holdback sum. Depending on the jurisdiction governing release of Statutory
Holdback amounts, we recommend a separate invoice clearly identifying the request for release of
the Holdback. When a Payment Certifier is involved it is imperative that a Substantial Completion
Certificate be obtained prior to invoicing for your "Statutory Holdback." The regulations
regarding "Statutory Holdback" releases and your obligations is based on the location of the
project and laws governing this item. We will not present detailed information or the steps
required in processing or obtaining "Statutory Holdback" releases due to there individual and
specific location requirements.

Should there be a deficiency amount deducted from your progress billing we recommend
that this be kept separate from your "Statutory Holdback" invoice amount. Unless the deficiency
sum exceeds the amount necessary to obtain "Substantial Performance" we suggest keeping this
item separate from your Statutory Holdback. The obvious solution to this deficiency sum
dilemma is to correct the deficiency prior to obtaining "Substantial Performance" and not later
than the "Statutory Holdback" release date. A key element of any accounting method will be the
ability to identify aging of your Accounts Receivable into 30,60,90 day categories and also
maintain a separate listing for Holdback amounts being deducted. An accounting system that
integrates with your other accounting system needs is preferable. Prior to submitting the first
progress invoice we recommend a total receivable contract amount be set-up and entered for each
individual Project.

The advantage of an integrated accounting system for the Accounts Receivable operation
will be the ability to identify any shortfall or excess in total amounts billed for your individual
projects. To maintain this method as a reliable check and balance system it is important that all
approved Change Orders be immediately entered into the initial set- up contract amount. Should
payments received not match the invoiced amount it is important to use a consistent method of
recording these irregular payments. Noting the amount of the variance on the filed hard copy of
this particular invoice and then adding this amount to your next progress billing can be
considered.