Construction ERP Essentials: Features Every Construction Accounting Software Should Have
Construction businesses need construction-specific accounting software with tight financial management controls and the ability to handle the complexities of contract-based and percentage of completion revenue recognition methods, because of the nature of the construction business and the necessity of collecting income from various streams.
Contractors complete projects for multiple clients, track project expenses closely, manage complex invoices, and stay on top of tax compliance. There’s also the ever-changing volume of jobs as well as subcontractors to manage, and variable payment schedules.
Comprehensive construction accounting software typically includes features that will help you improve project management and support your growing business. Our blog will outline some of the most important features to look for in construction accounting software.
Because contractors must closely monitor costs for every job, WIP Reporting is a critical financial management tool. A WIP report includes the total amount of money spent on the project, the current stage of completion, and the projected end date. It helps you keep tabs on costs and ensures you are adequately billing the client for the work completed.
Accurate, up to date WIP Reporting is essential for assessing the financial health of lump sum projects. It’s also used to recognize revenue over the course of the project timeline, so contractors don’t wait until the project is finished before they are able to recognize revenue and collect on billings.
Here are the main reasons it’s critical to include WIP Reporting Tools in your evaluation of construction accounting software:
- Project Financial Visibility – The WIP Report is the real time financial status of the project. Using the WIP Report allows you to make informed decisions, identify issues early, and make decisions to keep projects on budget.
- Accurate Revenue Recognition — The WIP Report allows you to recognize revenue in proportion to the completion of the project. Using this method is the most accurate representation of your financial performance on any project because it represents the percentage of work completed.
- Better Cash Flow Management — Because WIP reporting helps recognize revenue based on project milestones or completion percentages, it helps you line up your billing and cash collection processes with the actual progress of work.
- Compliance with Accounting Standards — WIP Reports are in compliance with Generally Accepted Accounting Principles (GAAP) and Financial Reporting Standards (IFRS). Keeping to these standards means your financial statements accurately reflect the your financial position.
- Risk Mitigation — WIP Reporting helps you track financial metrics in real time, so you’re able to proactively manage potential cost overruns, delays, or other issues.
- Better Project Management — Using WIP Reporting means you can evaluate the profitability of each project phase and assess the performance of subcontractors and suppliers. This data will aid your project managers in improving their project management strategies and ensuring that resources are used maximally.
- Enhanced Decision Making — Up to date financial data means you can provide all your managers the information they need to make accurate strategic plans.
WIP reporting is key because it provides financial transparency, accurate revenue recognition, and effective project management.
Automated Financial Reporting
Growing your construction business relies on accurate, up to date financial data that’s accessible for anyone in your company who needs it. This financial data includes financial statements, KPIs, and more as we outline below.
- Timely Decision Making — Timely access to financial data allows for informed decision-making, which can help you respond quickly to changing project dynamics, market conditions, or unexpected challenges. Whether it’s tracking project expenses, monitoring cash flow, or evaluating profitability, automated reporting provides your managers with relevant financial insights.
- Accuracy and Compliance — When you’re dealing with complex financial transactions and compliance requirements, automation keeps your calculations accurate, reduces data entry errors, and can automatically update your financial statements.
- Efficiency and Resource Optimization — Automated financial reporting streamlines the reporting process, saving you valuable time. Rather than manually inputting data, creating reports, or consolidating financial information, a sophisticated reporting system can handle calculations faster and free up your administrative staff for more strategic tasks, including financial trend analysis, planning for future projects, or addressing critical financial issues.
Accurate, up to date job costing helps you allocate expenses to specific jobs, so you can see precisely if a job is on track to meet your projected budget. Job costing also provides insight into the profitability of each job, so you can make informed decisions about the work in progress and manage resources efficiently.
Your construction accounting software must include precise job costing, so you can manage job resources efficiently. With job costing you’ll be able to track expenses, labor, and materials. Accurate job cost updates help you control costs and address potential budget overruns before they happen. Not every ERP software is built to handle the kind of detailed job cost accounting you need, including large equipment purchases, calculating committed costs, as well as managing retention.
Retainage is unique to the construction industry. Without construction accounting software that calculates retainage or progress claims, you may be wasting valuable time on manually tracking retainage payments.
Retainage is a portion of each progress payment that is withheld by the client until the completion of the project. Typically, retainage is an amount equal to 5% to 10% of the progress billing payment and is held until the contractor completes all of the contractual obligations. Retainage is intended to offer protection against incomplete or substandard work.
Tracking retainage and progress payments can help identify cash flow problems like whether the job will be profitable. It serves as a financial safeguard and is intended to motivate contractors to meet quality standards and completion deadlines, while also providing a cushion against potential issues or disputes about the quality of work.
Many contractors outsource their payroll processing because of the complexities in construction payroll, but you don’t have to.
Contractor payroll must be accurate and processed in a timely fashion. Otherwise, you may risk significant penalties. Superior construction accounting software should have a reliable, flexible, and feature-rich payroll module.
Here are the key items to look for when you’re assessing the payroll feature:
- Supports local, state, and federal payroll regulations.
- Tracks employee time and expenses across multiple job sites.
- Generates accurate and detailed reports for each job site.
- Calculates prevailing wages.
- Processes multi-level payroll (federal, state, and local).
- Adheres to Union Payroll
Invoicing and Purchasing
Topflight financial management of any contractor business must include flexible invoicing and purchasing features. Spreadsheets alone are not sufficient for accurately tracking progress billings.
Good invoicing software ensures timely and accurate billing, so you can keep cash flow positive and ensure your clients stay satisfied.
Sophisticated purchasing features help you to streamline procurement for job related items like materials and equipment. Look for software that tracks approvals, uploads invoice data without rekeying, and offers workflows for routing invoices.
Together your invoicing and purchasing modules provide a comprehensive overview of financial transactions, allow you to budget carefully, manage company expenses, and furnish data so you can make informed decisions.
Construction accounting software is a key foundation for a successful construction business. It allows you to streamline financial tasks, automate invoicing, track expenses, and keep compliant with tax and union rules. These efficiencies reduce manual errors and free up time for you to focus on managing your projects so you can grow and build your company.
When evaluating construction accounting software like eCMS from Computer Guidance, be sure it includes key features that are tailored for industry needs, such as job cost accounting, WIP Reporting, Integrated Payroll, and more. Construction accounting software enables you to improve your operations, save time, and reduce errors.