In construction, cash doesn’t just move - it flows through a maze of contracts, compliance checks, and milestone-based billing. In the construction industry, each payment is tied to progress, not just a calendar. That’s why managing accounts payable in this industry isn’t as simple as writing a check. It’s about control, compliance, and communication - all while projects are quite literally under construction.

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This blog covers: 

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• What is construction accounts payable and why it’s unique
• How the schedule of values impacts payment flows
• The importance of retainage and its role in project cash flow
• Common billing documents used in construction AP
• Popular payment methods in construction projects
• How lien waivers protect against future claims
• Strategies for ensuring vendor compliance in construction finance
• Best practices to streamline your construction AP process
• How automation enhances speed and accuracy in construction AP
• Tips for selecting the right software for your construction AP needs
• How Spendflo improves construction finance and vendor management
• Frequently asked questions on construction accounts payable

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What is Construction Accounts Payable?

Construction accounts payable refers to the specialized process of tracking, verifying, and paying for goods and services in a construction project. It includes handling complex documents like lien waivers, retainage agreements, and progress billings - ensuring vendors, subcontractors, and suppliers are paid accurately and on time.

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Understanding the Schedule of Values in Construction AP

Think of the schedule of values (SOV) as a financial roadmap for the entire project. It breaks down the total contract amount into individual line items - each representing a specific portion of work. This structure allows contractors to bill progressively, based on how much of each task has been completed.

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What Is Retainage and Why It Matters

Retainage is a portion of the payment - usually 5% to 10% - withheld until a construction project reaches substantial or final completion. It protects the project owner by ensuring all work is finished to standard. For AP teams, managing retainage correctly is key to maintaining cash flow visibility and avoiding disputes during closeout.

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Key Billing Forms in Construction Projects

Construction billing relies on multiple standardized documents to ensure payments align with progress, support job costing, and contracts. Here are the key forms AP teams work with:

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AIA G702 (Application for Payment): Summarizes the total contract, amount billed to date, retainage, and current payment due.

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AIA G703 (Continuation Sheet): Itemizes the schedule of values, showing work completed per line item.

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Change Orders: Capture adjustments to scope, cost, or schedule. Critical for updating payment terms and project budgets.

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Vendor Invoices: Submitted by subcontractors or suppliers for delivered services or materials. Must be verified against POs. Many still submit paper invoices, increasing the risk of lost documents. 

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Purchase Orders (POs): Authorize purchases and serve as a reference point for validating invoices.

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Lien Waivers: Protect against legal claims. Conditional waivers are submitted before payment; unconditional ones after.

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Certificate of Substantial Completion: Signals project readiness for use and often triggers release of retainage.

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Common Accounts Payable Payment Methods in Construction

Construction projects use several payment methods depending on vendor preferences, urgency, and project complexity: 

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Checks: Still widely used, especially with smaller contractors. They offer traceability but are slow and prone to delays. These issues can complicate compliance with construction contracts. 

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ACH Transfers: A preferred method for recurring payments - faster, more secure, and cost-effective.

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Wire Transfers: Used for urgent or high-value payments. Instant but expensive.

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P-Cards (Procurement Cards): Ideal for small, ad-hoc purchases. Requires strict controls to prevent misuse.

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Digital Payment Platforms: Tools like Bill.com or construction ERP platforms streamline approvals and integrate lien waiver tracking.

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Retainage Holdbacks: Not a method per se, but critical in construction. Payments are split - with a portion held until project milestones are met.

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Using the right method improves speed, reduces errors, and strengthens vendor trust - all essential for keeping projects on schedule.

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The Role of Lien Waivers in Construction AP

Lien waivers are legal documents confirming that a subcontractor or supplier has been paid and waives their right to file a lien on the project. For AP teams, collecting lien waivers at the right time - conditional before payment, unconditional after - helps protect the owner from future legal claims. They’re essential in ensuring payment transparency and keeping project finances clean.

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Ensuring Vendor Compliance in Construction Finance

Vendor compliance helps safeguard construction projects from delays, penalties, and financial risk. AP teams should follow these steps:

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Verify Licenses and Insurance: Ensure every vendor has valid certifications and active liability/workers’ comp insurance.

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Collect Tax Documentation: Gather vendor details like W-9s or W-8BEN forms before initiating payments.

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Enforce Contract Terms: Confirm that vendor invoices align with signed agreements and purchase order details.

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Track Retainage Agreements: Make sure retainage percentages are contractually agreed upon and correctly withheld.

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Monitor Lien Waivers: Don’t release payments without collecting the appropriate lien waiver at each payment stage.

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Audit Regularly: Periodically review vendor files to confirm nothing has expired or gone missing.

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Use Compliance Software: Automate tracking of expiry dates, missing documents, and reminders.

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Consistent vendor compliance protects your budget, reputation, and legal standing - especially in high-risk, high-stakes construction environments.

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Best Practices for an Effective Construction AP Process

A well-run AP process keeps projects funded, vendors happy, and cash flow healthy. Here’s what best-in-class teams do:

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Standardize Workflows: Define steps from invoice intake to payment - and stick to them.

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Use PO Matching: Match invoices against purchase orders and delivery receipts to prevent overpayments. Consistent invoice format reduces confusion and helps approvals move faster. 

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Set Clear Approval Paths: Use tiered approval workflows based on invoice value or project type.

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Automate Where Possible: Adopt AP tools that automate data capture, approvals, and alerts, reducing manual data entry.

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Monitor Payment Timelines: Avoid late fees and friction by proactively tracking due dates, it strengthens supplier relationships. Paying early can help you take advantage of payment discounts offered by some vendors. 

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Store Documents Centrally: Maintain digital access to invoices, contracts, and lien waivers in one place.

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Collaborate Cross-Functionally: Keep finance, legal, procurement, and project teams aligned.

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Small changes in process consistency can lead to big wins in speed, accuracy, and vendor trust, while preventing costly errors.

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How to Automate Construction Accounts Payable

Automating construction AP streamlines complex, document-heavy workflows. Here’s how to get started:

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Digitize Invoice Capture: Use OCR to extract and auto-code invoice data.

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Automate PO Matching: Match invoices with POs and receipts to flag discrepancies.

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Set Approval Workflows: Route invoices to the right approvers based on amount or project.

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Track Lien Waivers Digitally: Ensure waivers are submitted before payments go out.

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Schedule Payments: Automate disbursements based on due dates and compliance checks.

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Choosing the Right Construction AP Software

The ideal construction AP software should align with industry needs and project complexity. Look for:

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Support for AIA Forms: Ensure the platform handles G702/G703 formats and schedule of values.

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Retainage Management: Automatically track and release withheld amounts at project milestones.

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Custom Workflows: Build routing rules based on dollar amount, vendor type, or phase.

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Integration Capabilities: Sync with ERP, project management, and accounting software systems.

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Document Storage: Store contracts, COIs, lien waivers, and invoices in one centralized hub.

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Real-Time Dashboards: Get visibility into invoice status, vendor payments, and compliance. Good reporting tools can also flag delays and highlight trends in vendor spend. 

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Mobile Accessibility: Field teams should be able to upload documents and approve invoices on the go.

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Scalability and Support: Choose a solution that grows with your projects and offers onboarding help.

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A construction-focused AP tool does more than automate - it safeguards compliance and keeps payments tied tightly to progress.

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How Spendflo Helps With Construction Finance Efficiency

Spendflo brings structure and visibility to construction accounts payable by centralizing contract data, tracking renewals, and automating vendor compliance workflows. Our platform helps finance teams streamline approvals, prevent overpayments, and manage complex billing processes - all while ensuring real-time visibility into SaaS and procurement spend across every project phase.

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Frequently Asked Questions on Construction Accounts Payable

What makes construction accounts payable different from other industries?

Construction AP involves complex billing tied to project milestones, retainage withholding, lien waiver tracking, and heavy documentation - unlike standard invoice-payment workflows in other industries.

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How do retainage rules affect contractor payments?

Retainage withholds a percentage of payment until the project is substantially complete. It impacts cash flow and requires AP teams to track withheld amounts and ensure timely release upon completion.

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What are the biggest challenges in construction AP?

Managing documentation, ensuring vendor compliance, tracking lien waivers, aligning with retainage rules, and avoiding late or duplicate payments are top challenges in construction AP.

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Can automation help with lien waiver management?

Yes. Automation tools can track waiver submission status, trigger alerts for missing waivers, and link waivers to payment approvals - reducing legal risk and ensuring compliance.

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