Change orders, multiple invoices and staged payments - A user guide

If the world was a perfect place, for every project, all you would need to do is assess the job, write up the quote and do the work, finishing with an invoice taken straight from your first quote.

The reality is, things rarely go to plan. In fact, more often than not, your customers will request changes and updates as the project goes on.

But what should you do when this occurs and what is the best practice to ensure you’re protected legally and your customers are on the same page?

The answer is change orders and multiple invoices.

In this article, we’ve broken down how to use change orders and create multiple invoices, with some top tips on how to make the process as simple as possible. Plus we've included some extra information on how to use invoices to take staged payments and deposits.

What is a change order?

A change order (sometimes called a change proposal) is a formal request to add or remove work from the terms of a contract. Usually, change orders are used on construction projects, home improvement projects or other jobs that are completed over a period (usually) longer than 24 hours.

Why do change orders happen?

The reason change orders happen is that over the course of a project, the requirements of that project can change. There may be an unforeseen issue that means additional materials are needed, or the customer may wish to add an extra feature to the end product.

A common example of this is when a customer requests to add an extra window that wasn’t in the original plans or wants to move a wall so an additional feature can be added.

To ensure these changes are formally recorded and paid for, a change order is needed.

Quotes vs contracts

Whether or not you use a contract for any given project is dependent on the nature of the job you are working on.

If you are working on a big project that involves large amounts of money then it is recommended that you use a contract (such as a minor works contract) or at the very least a highly detailed quote to ensure you are covered legally and the customer understands the terms of the work.

However, it is also perfectly valid not to use a formalised contract. Many tradespeople instead choose to use a detailed quote or estimate followed up with an invoice. The customer then signs the quote, accepting it as an official document.

To help cover yourself you can also include additional terms and conditions to the quote. In this way, a very detailed quote in effect doubles up as a contract.

It is worth noting, however, for large projects with commercial customers, a formalised contract should be created - just using a quote won’t be enough.

Why use a minor works contract?

Using a minor works contract such as a JCT minor works agreement is a good idea as it is a standardised, legally binding document that has been professionally created. By using a JCT you ensure you are legally protected for the work you undertake and save yourself having to write up a contract yourself.

Even though any written confirmation for a project will provide you with protection under the Housing Grants, Construction and Regeneration Act 1996, this only provides the most basic cover. A minor works contract ensures you have more high-level legal cover for the projects you work on.

You can easily purchase a minor works contract from JCT online.

Do I need to use change orders?

No, you only need change orders if:

1. You’re working on a complex project that requires a contract
2. You need to make changes to the contract to cover requested or necessary changes to the original project

You can make changes to a project without using change orders. You can instead use multiple invoices to record updates to the project.

How to prepare for change orders

To make sure you are prepared for change orders, you should ensure you have a framework in place that makes it easy to make changes to the terms of the project.

This involves implementing some of the following:

• Encourage an open dialogue between you and the customer from the beginning of the project, outlining how change requests should be made and implemented
• Design a contract that is flexible to change and allows you to easily implement change updates
• Have an effective quoting and invoicing process in place that allows you to easily make changes to your final prices

How to create a change order

Creating a change order involves two key parts: updating the original legal contract by creating a new document that records and formalises the new changes, and the second part, the creation of a new proposal and quote that records the new prices.

Depending on the scale of the project and the nature of the business you work for (or run), you may choose to roll your change order and proposal into one. This is usually the case for tradespeople who don’t use formal contracts to organise their work and stick to public-facing (rather than commercial) jobs.

If you generate a new proposal with updated prices, then customers can simply sign the new proposal, accepting the new prices and the changes in one document.

For high-value projects that involve multiple contractors and commercial projects, then a legally binding contract and official change documents are needed. To do this you could design the document yourself but it is recommended that you get legal help.

Multiple invoices

To create changes to the original project, a new proposal and new invoice are also required.

The ability to create multiple proposals quickly and add updates to the original quote is highly valuable. You need a system in place that allows you to do this, without losing track of the updates that have been made and the costs incurred.

Payaca’s quoting software allows you to design quotes and invoices using saved item groups and materials. This allows you to build quotes very quickly and make changes on short notice. This makes the software ideal for generating multiple invoices.

How do I create multiple invoices?

To create multiple invoices open Payaca via the mobile app (this can also be done on computer) and within the required deal, open the latest invoice. Tap on the 3 dots and choose edit. From there you can make changes to the invoice and send it back to the customer as a proposal they can accept.

This process can be repeated multiple times, whenever changes are needed.

Why are multiple invoices needed?

Multiple invoices are needed because customers change their minds. If you’re a tradesperson then it is almost certain that you have found yourself in the scenario where you are working on a job and a customer asks you to do something extra or to add something additional in.

These changes may often seem small to the customer but can have a significant impact on your prices and projected project time. That’s why it’s very important to be able to generate updated invoices that reflect these changes.

If you are not able to create updated invoices quickly and easily, it’s easy for this extra work to slip through the cracks.

This is why using effective quoting software like the software Payaca provides, is incredibly valuable.

Staged invoicing

The other common way multiple invoices are used is to create staged payments.

If you are working on a large project that is completed over a number of days, it’s a good idea to break the cost of the project down into stages to ensure you receive a steady income over the duration of the project.

To record these smaller payments, multiple smaller invoices are sent off and paid for. The ability to generate many invoices, track the costs, and record all of these payments against an overall invoice, is incredibly valuable.

What is staged invoicing?

Staged invoicing is a form of payment favoured by construction workers and other tradespeople that is used to break down large costs into smaller chunks that are paid over an agreed period of time.

Staged invoices help provide financial security for workers over the course of a project as payment is taken in stages, rather than as one lump sum at the end of the project.

Without staged invoices, a tradesperson runs the risk of losing out on their payment after the project is complete. By getting paid in stages the customer is forced to be accountable and can’t hold the tradesperson to ransom at the end of the project in the same way.

How to use staged invoices

There are two common methods that are used to implement staged invoicing. The first is percentage total payments and the second is per item or per group payments.

Percentage payments are invoices that are charged as percentage chunks of the total project cost. For example, a tradesperson might break a £1000 project down into 10% chunks at £100 each.

The tradesperson would create a new mini invoice for each 10% payment, collecting the income over a set period over the duration of the project (say every Monday for 10 weeks).

The other form of payment is done by breaking the project down into component parts. For example, a house refurbishment job might be separated into recladding the roof, replacing the kitchen and installing a new bathtub.

Each section of the project would be priced and invoiced separately. So once the roof was completed that would be invoiced and paid for and the next part of the project would then be completed and so on.

Both methods are great ways to manage payments sustainably over the course of the project and both rely on the creation of multiple invoices. Without these invoices, a tradesperson would be unable to easily track their payments over the course of a project.

The other use for staged invoices is to take deposits. An initial invoice can be sent to the customer for the deposit and then a final or further invoices can be sent once the project is underway.

If you want to find out more about how multiple invoices can be used to make your business more efficient, then check out the full list of quoting and job management features Payaca offers on the payaca website.