Implement Cost Accounting in Construction – Processing Documents

In construction there is little respect for processing paperwork. Contractors want to build projects, not deal with how paper is managed. But to gain a true understanding of what it costs to build a project and implement cost accounting, the contractor has to process documents in a meaningful way. To successfully implement cost accounting in construction, the contractor must process documents and store these documents for future reference. The two prior articles cover setting up a file structure and creating a document flow system to implement cost accounting in construction. For further information on these two articles go to the following links:

File Structure in Construction
Document Flow System in Construction

To understand the best methods of processing documents, this article will address how to deal with the mail, hand receipts, credit card receipts and other types of documents. Each section will describe the handling process and where the final source document (the actual receipt or bill) ends up in the file structure.

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Processing Mail (Including E-Mail)

With all parties involved in the business having knowledge of project numbering and phase codes, you can now begin to process documents. Incoming mail should be opened by staff and sorted. In addition an approval system stamp should be imprinted on the bill. It should look something like this:

Date Received – _______________
Project ID # – ____________ Project Manager Name – ____________

Phase Code – ____________ Project Manager Approval Initials – ____

Contractor Approval – _______________________ (Initials Only)

Scanned Date – ____________ Bookkeeping – _________/________
Date/ Initials

All construction related bills received should be sent to the respective project manager assigned for that project. The manager should verify the phase code or reset the code if improperly coded. From there, the physical document goes to the owner for review and initial. Once approved, the front office scans the bill into the project electronic folder, see Create a File Structure for Accounting for more help in designing and creating an electronic filing system. In addition, the bill is scanned to a sub-folder for the respective month and year to the vendor file. This way there is an easy access to find documents associated with a particular vendor and/or project. Once scanned into the system, the bookkeeper enters the bill into the accounting software for payment. The physical document is placed in the vendor to pay folder for temporary storage until the check is cut for the bill. Once a check is cut, a stub (3 part check system) is removed and stapled to the bill. From here, the bill is place in the storage folder for the project in the respective phase folder.

Processing Hand Receipts

Hand receipts are processed in a similar fashion as the received mail. However, often the ticket is some form of cash out of pocket or charge on a credit card. All staff should know to right away write the project number on the ticket and the related phase code associated with the ticket. It should be delivered to the front office for processing; stamped and approval process as identified above as if the ticker were mail.

Most of these hand receipts will be paid with credit cards. Since the credit card company only sends out their statements monthly, it is important for the front office to record the ticket and place the actual receipt in the credit card folder for that particular credit card account. At the end of the month, the ticket is matched to the credit card statement. Any outstanding charges should be addressed with the cardholder for reconciliation.

Dealing with Credit Accounts

Typically, the credit accounts consist of both credit cards and vendor supplier accounts. The suppliers generally only send a statement monthly. The actual bills or sometimes referred to as tickets are issued at the point of pickup or delivery. Each of these tickets should be scanned to the credit card account and vendor account for reconciliation at the end of the month.

It is important for the front office to manage the volume of receipts that arrive. Many project managers wait until the last minute to turn in receipts or hand tickets. Therefore the front office should have a policy for cut-off dates.

Cut-off dates

For credit card and hand receipts – once a week at a minimum
Vendor accounts – make sure the vendors know that the bill has to be in the office no later than a Tuesday 5PM to receive a check on Friday. I can assure you that this method works very well. By having the bill in on Tuesday, the project manager and front office can process the bill and issue a physical check on Thursdays for delivery on Fridays.
Supplier accounts – the best method here is to have the front office arrange with the primary suppliers a weekly statement program, whereby the supplier sends a statement each week or possibly a PDF file e-mailed to the front office weekly. This is a communication process for the front office.

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Summary – Processing Documents in Construction

When implementing cost accounting in construction it is important to have a file structure, flow system and a document processing system that gets the dollar value of the receipt recorded to the correct project and corresponding phase. With the information properly loaded into the system, a contractor can identify the true reason a project has financial discrepancies from the estimated amount. Processing mail, hand tickets, credit card and supplier accounts; and dealing with all the documents involved is not complex but it can get overwhelming without a good file structure, flow and processing system in place in the front office. Act on Knowledge.

Implement Cost Accounting in Construction – Processing Documents

Implement Cost Accounting in Construction – Processing Documents

Processing Mail (Including E-Mail)

Processing Hand Receipts

Dealing with Credit Accounts

Other Documents

Summary – Processing Documents in Construction