Billing for construction companies is not often as simple as raising an invoice and waiting for the money to arrive. With multiple subcontractors, stage payments and the rules of the Construction Industry Scheme (CIS) to observe, the right approach to billing for construction companies determines whether projects run smoothly or grind to a halt. In this article, we explore common charging models, show how to protect cashflow and explain the records HMRC expects you to keep in the 2025/26 tax year.
According to the Office for National Statistics (ONS), Great Britain employed about 1.4m people in construction during 2023 – up 0.2% on the previous year. Growth brings opportunity, but only if billing for construction companies keeps pace with rising labour and material costs.
Choose the right billing method
There are three main billing methods you can use.
Milestone billing keeps large jobs on schedule
Milestone billing for construction companies links payment to tangible deliverables – for example, completion of foundations or sign‑off of the roofing stage. It is popular with main contractors because it mirrors project programmes and creates clear audit trails. To make milestone billing work:
- agree milestones before work starts and document them in the contract
- price each stage realistically, allowing for retention if the client insists
- issue invoices immediately when a stage is signed off to preserve cashflow.
Time and materials billing suits changeable work
Where the scope is uncertain – refurbishments or reactive maintenance, for instance – time and materials billing for construction companies offers flexibility. Hourly labour rates and cost‑plus‑markup on materials should be stated upfront, together with a cap so clients feel protected. Modern job‑tracking apps feed labour hours straight into your accounting software, reducing manual entry.
Fixed‑price contracts reward efficiency
If drawings, specifications and timelines are settled, a fixed‑price contract gives clients cost certainty while rewarding firms that control costs. However, remember to:
- build inflation contingencies into the price
- insert variation clauses so you can re‑price changes legitimately
- track actual costs against budget weekly – overruns hurt margins fast.
Protect cashflow with clear payment terms
Cashflow is the lifeblood of every site. The ONS reports that UK construction output still rose 0.5% across 2024, despite higher interest rates, showing the sector’s resilience. Yet late payment remains a persistent risk. The Federation of Small Businesses estimates that late payments cause around 50,000 small businesses to close annually.
There are practical steps you can take to safeguard your position.
- State payment terms (for example, 14 days from invoice) in both the contract and the invoice footer.
- Use staged applications for payment on long jobs rather than waiting for month end.
- Apply the Late Payment of Commercial Debts (Interest) Act interest automatically when terms are breached.
- Offer early‑settlement discounts – a 2% saving is often cheaper for clients than retention release later.
Harness digital tools for faster billing
Digital platforms have transformed billing for construction companies. Cloud accounting systems such as Xero, Sage or QuickBooks integrate with project‑management apps like Procore or Buildertrend. Benefits include the following.
- Real‑time cost capture: Labour hours and purchase orders flow straight to draft invoices.
- Automatic CIS deductions: Software calculates the 20% (or 30% for unverified subcontractors) tax at source and produces CIS statements.
- E‑invoicing and payment links: Clients pay online, cutting the average payment cycle by up to nine days, according to industry surveys.
Under the VAT domestic reverse charge, main contractors must account for VAT on most labour‑only and labour‑plus‑materials services. Good software applies the correct reverse‑charge wording and zero rates the supplier invoice automatically. HMRC’s guidance is worth bookmarking for your finance team.
Stay compliant with CIS without slowing down invoicing
CIS compliance is inseparable from billing for construction companies. Failures lead to costly re‑work and penalties, so use our checklist.
- Verify every subcontractor before the first payment and record their unique taxpayer reference (UTR) and verification number.
- Itemise labour and materials separately on payment certificates – CIS applies only to labour.
- Send monthly CIS returns to HMRC by the 19th following the tax month.
- Issue deduction statements to subcontractors at the same time as payment so they can claim credit in their own tax returns
Our construction accounting team can set up CIS workflows in your accounting package, leaving you free to focus on the site.
Tackle late payments early
Late invoices derail project schedules and supplier relationships. Embed the following habits.
- Credit‑check new clients and insist on upfront deposits for businesses with weak ratings.
- Automate reminders to send a gentle nudge one day before due, a firmer reminder three days after and a final notice at seven days.
- Escalate quickly – a phone call from the contract manager often unlocks payment faster than formal letters.
- Use project bank accounts on public‑sector jobs so payments to the supply chain are ring‑fenced.
If a dispute arises, keep communication factual and reference the signed contract. Detailed timesheets, purchase invoices and signed variation orders strengthen your case.
Keep records that stand up in a dispute
HMRC can inquire into CIS deductions up to six years back, and the Technology and Construction Court expects meticulous evidence. Store the following:
- signed contracts, variations and milestone sign‑off sheets
- digital copies of supplier invoices and delivery notes
- time‑stamped site diaries and photographs.
Secure cloud backups mean that even if a laptop is lost, your billing for construction companies’ data remains accessible.
We’re here for you
Billing for construction companies sits at the heart of project success. Choose a fee structure that mirrors the scope, agree payment schedules that keep subcontractors motivated and pair those decisions with digital tools that capture costs in real time. When the figures are transparent everyone – client, main contractor and supply chain – understands exactly what has been earned and what still needs doing.
Strong billing habits do more than protect cashflow: they strengthen relationships. Clear pricing and prompt, accurate invoices reduce the risk of conflict, speed up decision‑making on variations, and free project managers to focus on quality and safety instead of chasing cheques. By coupling robust CIS processes with disciplined credit control you also cut HMRC risk and create a record set that stands up in any dispute.
Our team works with owner‑managed firms across the sector, from roofing specialists to design‑and‑build contractors, and we know that even small tweaks – splitting materials from labour on invoices, automating reminders or moving to milestone billing – can release significant working capital.
Need practical support? Talk to our specialists about improving billing for construction companies, boosting your cashflow and freeing up more time to win the next contract. Speak to us today.
