What is invoice approval in construction?

Invoice approval sits between receiving a bill and paying it. In construction it is more than a signature. The office has to confirm the invoice matches a purchase order or subcontract, that the material arrived or the work is in place, that the price matches the agreement, and that it is coded to the right job and cost code. Only then does it move into accounts payable for payment.

The approver is usually the project manager, because only the PM knows whether the 40 sheets of plywood on the invoice actually showed up and whether the drywall sub really finished the second floor.

How invoice approval works on a real job

Say an electrical sub invoices a GC $62,000 for March on a school renovation. A typical flow looks like this:

1. Receive and log: AP logs the invoice by job, vendor, and amount.
2. Match: AP checks it against the subcontract commitment, the approved schedule of values, and prior billings. For materials, this is the three-way match: PO, delivery ticket, invoice.
3. Field check: the PM or superintendent confirms percent complete. The PM agrees the sub is at 55 percent on rough-in, not the 65 percent billed, and approves $52,000.
4. Compliance check: current certificate of insurance, lien waiver from last payment, and certified payroll if it is a public job.
5. Approve and code: the approved amount is coded to job cost, with retainage withheld.
6. Schedule payment: often tied to when the owner pays the GC, under the subcontract's payment terms.

Why approval speed matters

Slow approvals hurt both sides. The sub waits longer for money, and the GC can lose early-payment discounts from suppliers or miss deadlines in a state's prompt payment law. Many states set how many days a contractor has to pay subs after receiving payment; see prompt payment rules by state. An invoice sitting in a PM's truck for two weeks can turn into interest owed.

Common mistakes

• Approving by email with no record of who approved what amount.
• Paying invoices with no matching PO or commitment, which hides committed cost overruns until it is too late.
• Duplicate payments when the same invoice comes in by mail and email.
• Paying subs whose insurance expired last month.
• Coding everything to one general cost code, which ruins job costing.

Approval also protects the GC's own billing. If a sub's invoice is approved for more work than the owner will accept on the GC's pay application, the GC ends up paying out money it has not collected. Matching each sub's approved percent complete to the line on the owner billing keeps the two in step.

See how to manage construction purchase orders and how to track committed costs before invoices arrive. Smart Business Automator extracts invoice data, matches it to POs and subcontracts, and routes it to the PM for approval; see construction workflow automation.